THE  GIFT  OF 

MAY  TREAT  MORRISON 

IN  MEMORY  OF 

ALEXANDER  F  MORRISON 


r 


/  (  L' 


MUNICIPAL    TRADE 


MUNICIPAL    TRADE 

THE  ADVANTAGES  AND  DISAD- 
VANTAGES RESULTING  FROM  THE 
SUBSTITUTION  OF  REPRESENTA- 
TIVE BODIES  FOR  PRIVATE  PRO- 
PRIETORS IN  THE  MANAGEMENT 
OF      INDUSTRIAL      UNDERTAKINGS 


By    MAJOR    LEONARD    DARWIN 

AUTHOR   OF    "bimetallism" 


NEW  YORK 
E.   P.   BUTTON   &   COMPANY 

1903 


Printed  in  Great  Britain 


7D  ^S  >o 


CONTENTS    IN   BRIEF 

Fo7'  full  Contents  see  next  2'"'<{l^- 

CHAP.  PAGE 

I.    HISTORICAL   SKETCH  .....  1 

n.    MUNICIPAL  TRADE   AND   SOCIALISM  .  .  .28 

III.  MONOPOLIES  ......  47 

IV.  THE   ADVANTAGES   OF    MUNICIPAL    TRADE  .  .  .69 
V.    ADMINISTRATION   AND  CORRUPTION             .                .                .94 

VI.    PUBLIC   AND   PRIVATE   MANAGEMENT  .  .  .136 

Vn.    RISKS  AND  GAINS  .....         173 

viii.  municipal  statistics     .....  207 

ix.  price  and  quality        .....  247 

x.  competition  and  protection    ....  284 

xi.  municipal  house-building        .  .  .  ,319 

xii.  legislation  with  reference  to  municipal  trade     .  346 

xni.  legislation  affecting  private  trade            .           .  384 

xiv.  conclusion        ......  430 

Appendix       .......  453 


429343 


ANALYSED    CONTENTS 

PAGE 

I.— HISTORICAL  SKETCH i 

Municipal  Trade  was  little  practised  sixty  years  ago ;  it  is 
now  increasing  rapidly  ;  and  it  is  more  extensively  under- 
taken in  Great  Britain  than  in  any  other  conn  try. 

(i)  The  phrase  "  ?*Iunicipal  Trade"  need  not  be  rigidly  defined. 
(2)  Municipal  extravagance  is  not  dealt  with  here.  In  this  Chapter 
is  traced  the  introduction  of  Municipal  (3)  Markets,  (4)  Baths, 
(5)  Harbours,  (6)  Piers  and  (7)  Water  Supply.  (8)  As  to  the  last- 
mentioned  enterprise,  large  towns  have  led  the  way  ;  and  (9)  very 
considerable  sums  have  been  invested  in  the  United  Kingdom 
(10)  and  in  Foreign  countries;  (11)  Hydraulic  Power  Works  being 
sometimes  added  as  an  adjunct.  (12)  Municipal  Gas-works  in 
England  (13)  have  been  for  the  most  part  established  since  1850; 
(14)  and  this  trade  is  commonly  municipalised  in  Germany  but  not 
elsewhere  abroad.  (15)  In  the  Gas  trade  is  included  the  manufacture 
of  residual  products.  (16)  Electric  Lighting  Works  are  generally  in 
private  hands  in  America  ;  (17)  on  the  Continent  they  are  more 
often  municipalised,  and  (18)  this  is  the  case  with  the  majority  of 
works  in  England.  (19)  The  effect  of  terminable  concessions  will 
be  to  increase  the  number  of  municipal  works.  (20)  Tramway 
enterprise  has  been  more  progressive  and  has  been  less  frequently 
municipalised  in  America  (21)  and  on  the  Continent,  than  (22)  in 
England  ;  and  (23)  municipal  management  will  probably  increase 
largely  in  Great  Britain.  (24)  Omnibuses  have  been  run  in  con- 
nection with  Municipal  Tramways.  (25)  Municipal  House-building 
has  only  been  recently  undertaken  in  England.  (26)  Under  the 
Act  of  1S90,  Parts  I.  and  II.,  municipalities  may  become,  in 
exceptional  cases,  both  house-builders  and  house-owners  ;  (27)  whilst 
Part  III.  gives  to  municipalities  more  definite  powers  of  trading 
in  house  property.  (28)  Municipal  house-building  has  been  little 
practised  abroad.    (29)  Pawnshops  and  Insurance.    (30)  Many  other 


ANALYSED   CONTENTS 


PAGE 


enterprises  are  carried  on  by  a  few  municipalities  ;  (31)  and  many 
demands  have  been  made  for  further  powers.  (32)  English  municipal 
rates  and  {33)  municipal  debts  are  increasing  rapidly,  (34)  and  are 
considerably  heavier  than  the  local  debts  of  other  important 
countries.  (35)  Thus  Municipal  Trade  is  increasing  rapidly,  and 
is  more  extensively  undertaken  in  Great  Britain  than  elsewhere  ; 
(36)  and  here  we  have  to  consider  how  far  this  movement  is  a  wise 


one. 


II.— MUNICIPAL  TRADE  AND  SOCIALISM        ...        28 

77iis  volume  does  7iot  deal  with  Socialism ;  although  no 
doubt  Socialists  are  advocating  Municipal  Trade  as  a 
stepping-stone  to  some  thoroughly  socialistic  system.  The 
socialistic  plea  that  workmen  will  receive  more  favour- 
able treatment  when  employed  by  the  State  cannot  be 
admitted  as  an  argument  i7i  favour  of  Municipal  Trade. 
The  advantages  and  disadvantages  resulting  from  munici- 
palisation  must,  therefoi^e,  be  balanced  one  against  the  other 
in  each  case  separately. 

(i)  Although  Municipal  Trade  and  Socialism  are  products  of  the 
same  forces  (2)  this  volume  does  not  deal  with  Sociahsm.  (3)  The 
socialistic  argument  based  on  the  favourable  treatment  of  workmen 
employed  by  municipalities  must,  however,  be  examined.  (4)  Fair 
wages  clauses  should  be  inserted  either  in  all  or  in  no  contracts.  (5) 
Municipal  Trade  is  advocated  as  being  beneficial  to  the  workmen  in 
both  municipal  and  private  employment.  (6)  As  regards  beneficial 
reforms  involving  no  cost,  they  should  generally  be  enforced  by 
Parliament  on  all  employers,  public  and  private.  (7)  Costly  benefits 
to  municipal  employees  must  increase  the  cost  of  municipal  pro- 
duction. (8)  Such  benefits  are  justified  neither  by  any  problematical 
saving  of  contractors  profits,  (9)  nor  by  the  fact  that  municipalities 
can  borrow  money  more  cheaply,  (10)  nor  by  any  possible  increase 
of  production  therefrom.  (11)  But,  if  as  a  matter  of  fact  municipal 
employees  are  more  highly  paid,  how  then  can  this  be  justified? 
(12)  It  can  hardly  be  justified  on  account  of  the  example  set, 
because  such  examples  are  not  followed.  (13)  The  superior  treat- 
ment of  municipal  workmen  is  equivalent  to  giving  them  a  bonus 
out  of  the  revenue  ;  (14)  and  should  be  condemned  on  this,  (15)  and 
on  other  grounds.  (16)  Municipal  employment  and  charity  should 
not  generally  be  combined.  (17)  The  advantages  and  disadvan- 
tages of  municipalising  each  trade  should  be  separately  considered. 


ANALYSED   CONTENTS  xi 


PAGE 

III.-MOx\OPOLIES 47 

There  is  an  increasing  tendency  for  certain  trades  to  become 
monopolies  ;  and  with  it  an  increasing  necessity  for  7nunicipal 
control.  The  choice  in  such  case  lies  between  the  municipalisa- 
tion  of  the  industries  in  question  and  subjecting  them  to  State 
regulation.  The  former  alternative  is  nozu  more  popidar ; 
but  its  popularity  tells  but  little  in  its  favour,  because  the 
arguments  on  the  two  sides  are  not  placed  with  equal  force 
before  the  people  and  because  the  ifijurious  indirect  effects  are 
usually  ignored. 

(i)  The  tendency  of  trades  to  become  monopolies  has  increased, 
and  has  tended  to  foster  Municipal  Trade.  (2)  This  increase  has 
been  due  to  the  law  of  increasing  return,  (3)  which  tends  to  make 
rival  firms  amalgamate  ;  (4)  to  the  effect  of  granting  rights  to 
interfere  with  the  streets  ;  (5)  to  the  advantages  arising  from  a 
large  clientele;  (6)  and  to  the  increase  in  the  value  of  land  in 
towns.  (7)  In  the  case  of  monopolies,  prices  must  be  regulated 
by  the  State,  (8)  which  may  be  done  either  by  municipalisation 
or  by  the  control  of  private  undertakings  ;  the  choice  between 
these  methods  being  the  subject  here  discussed.  (9)  This  choice 
must  also  be  considered  in  the  case  of  competitive  industries. 
(10)  Merely  to  consider  whether  any  industry  will  be  well  managed 
by  the  State  does  not  help  in  making  this  choice.  (11)  To  what 
extent  should. the  popularity  of  Municipal  Trade  count  in  its  favour? 
(12)  Popularity  based  on  sentiment  proves  nothing.  (13)  Municipal 
Trade  may  appear  to  be  more  popular  than  it  is.  (14)  The  evidence 
in  favour  of  Municipal  Trade  is  more  voluminous  than  that  in  favour 
of  private  trade.  (15)  Legitimate  pride  prejudices  both  councillors 
and  (16)  officials.  (17)  Councillors  represent  both  the  consumers 
and  the  manufacturer  in  Municipal  Trade.  (18)  Official  utterances 
based  on  recently  established  enterprises  are  especially  unreliable 
as  an  indication  of  success,  (19)  and  popular  opinion  is  largely  based 
on  such  official  evidence.  (20)  Popularity  may,  moreover,  be 
dependent  on  temporary  beneficial  results,  (21)  which  may  be  felt 
even  though  Municipal  Trade  is  not  the  best  system  which  could 
have  been  adopted.  (22)  Lastly,  popularity  is  a  delusive  test, 
because  it  depends  on  obvious  facts  and  arguments.  (23)  Summary 
of  chapter. 


xii  ANALYSED  CONTENTS 


PAGE 

IV.— THE  ADVANTAGES  OF  MUNICIPAL  TRADE  .        69 

The  strongest  argument  in  favour  of  Municipal  Trade  is  that 
companies,  looking  inaitily  to  making  profits,  may,  in  the  case 
of  monopolies,  ignore  questions  connected  with  public  health, 
morals,  order,  or  convenience.  Municipal  Trade  is,  tJiere- 
fore,  undoubtedly  right  in  many  cases. 

(i)  To  admit  that  the  importance  to  the  community  of  any  in- 
dustry justifies  its  municipalisation  almost  admits  the  case  for 
Sociahsm ;  (2)  and  importance  is  no  criterion  as  to  how  far 
municipalisation  is  advisable.  (3)  The  onus  of  proof  rests  with 
those  who  demand  municipaHsation.  (4)  Rigid  control  or  muni- 
cipalisation is  necessary  with  complete  monopolies.  (5)  The  State 
will  pay  more  attention  than  private  proprietors  to  health,  morals, 
etc.,  and  for  this  reason,  (6)  especially  where  prices  are  not  easily 
estimated,  (7)  municipalisation  is  often  advisable.  (8)  The  Liquor 
traffic  will  not  be  discussed.  Advantages  may  arise  from  the 
municipalisation  of  Baths,  (9)  Harbours,  (10)  Markets,  Cemeteries, 
and  Slaughter-houses.  (11)  But  the  arguments  here  considered  do 
not  necessarily  tell  in  favour  of  the  direct  employment  of  labour. 
(12)  Roads  should  be  in  public  hands,  (13)  and  thus  arises  an 
argument  of  no  great  weight  in  favour  of  municipal  gas,  water,  and 
electric  works  and  telephones.  (14)  The  surface  of  the  roadway 
should  be  in  public  hands  ;  (15)  though  the  tramway  business  need 
not  therefore  be  entirely  municipalised  ;  (16)  neither  need  tramways 
be  initiated  by  Local  Authorities.  (17)  The  difficulty  of  estimating 
cost  tells  strongly  for  municipal  water-works,  (18)  and  but  slightly 
for  municipal  gas  and  electrical  works.  (19)  The  necessity  for  a 
copious  supply  tells  for  municipal  water-works,  (20)  but  not  for 
municipal  gas  or  electric  works.     (21)  Summary  of  chapter. 


v.— ADMINISTRATION  AND  CORRUPTION       ...         94 

Municipal  Trade  in  moderation  has  a  stimulating  effect  on 
Local  Authorities :  but,  if  extensively  undertaken,  it  tends  to 
loiver  their  efficiency.  And  a  large  number  of  voters  being 
in  the  pay  of  the  State  adds  greatly  to  the  probability  of 
corruption. 

(i)  Municipal  Trade  stimulates  public  interest  in  local  administra- 
tion ;   (2)  but  it  also  has  harmful  effects.     (3)  Discontent  may  be 


ANALYSED   CONTENTS  xiii 

aroused  against  existing  suffrage  laws  ;  (4)  and  the  evils  of  the 
compounding  system  may  be  increased.  (5)  Discontent  will  also 
be  produced  by  the  taxation  of  traders  to  establish  rivals  to  them- 
selves ;  (6)  by  the  suspicion  that  judicial  functions  are  performed 
with  partiality  ;  (7)  and  by  the  action  of  contiguous  municipalities. 
(8)  Additional  work  due  to  municipal  trading  would  lower  the 
business  capacity  of  Local  Authorities,  (9)  and  would  tend  to  make 
them  neglect  their  ordinary  duties,  (10)  if  it  were  very  extensively 
undertaken.  (11)  Local  Authorities  should  not  be  involved  in  labour 
disputes.  (12)  Voters  being  paid  by  the  State  is  a  source  of  danger 
because  (13)  their  votes  are  apt  to  be  given  on  personal  grounds. 
(14)  The  more  scrupulous  the  candidate  the  less  likely  is  he  to  win 
the  votes  of  State  employees;  (15)  and  scrupulous  men,  therefore, 
are  less  likely  to  become  candidates.  (16)  Unscrupulous  councillors 
will  object  to  the  presence  of  the  scrupulous  on  Councils.  (17) 
Appointments  being  given  on  political  grounds,  (18)  and  the  in- 
sufficient salaries  of  municipal  officials  lead  to  corruption.  (19)  False 
steps  in  the  direction  of  Municipal  Trade  are  difficult  to  retrace.  (20) 
Corruption  tends  to  go  from  bad  to  worse.  (21)  The  ballot  is  little 
protection  against  corruption.  (22)  The  necessity  of  State  manage- 
ment in  certain  cases  makes  Municipal  Trade  less,  not  more,  advis- 
able in  other  cases.  (23)  A  small  margin  of  corrupt  voters  may 
suffice  to  maintain  a  corrupt  system.  (24)  We  must  not  rely  on  the 
existing  purity  of  our  municipal  administrations  ;  (25)  for  the  germs 
of  disease  already  exist.  (26)  The  corruption  existing  in  large 
American  cities,  (27)  and  in  the  smaller  towns,  (28)  should  be  a 
warning  to  England.  (29)  Corruption  is  used  in  the  United  States  as 
an  argument  for  "municipal  trading,  (30)  because  in  that  country 
private  enterprise  leads  to  so  much  corruption.  (31)  Even  if 
private  enterprise  now  directly  produces  more  corruption.  Municipal 
Trade  might,  in  the  end,  produce  worse  effects,  (32)  because, 
with  many  rate-paid  voters,  corruption  is  less  easily  eradicated. 
(33)  The  difficulty  of  eradicating  the  corruption  due  to  private 
enterprise  tends  to  diminish  ;  (34)  whereas  the  evils  due  to  public 
management  tend  to  increase.  (35)  In  the  United  States,  Civil 
Service  reform  is  necessary,  and  (36)  the  regulation  of  private  enter- 
prise has  been  much  neglected.  {2,7)  Complete  monopolies  should 
be  granted.  (38)  Public  management  is  more  demoralising  than 
public  ownership.  (39)  Municipal  Trade  has  been  undertaken 
to  a  comparatively  small  extent  in  the  United  States,  (40)  and  the 
case  in  its  favour  is  not  established.  (41)  In  England  Municipal 
Trade  is  more  likely  than  private  enterprise  to  introduce  corruption. 
(42)  Summary  ofthe  foregoing  arguments  as  to  corruption,  (43)  which 
tell  with  different  weight  in  different  cases.  (44)  Summary  of  the 
effect  of  Municipal  Trade  on  administration. 


xiv  ANALYSED   CONTENTS 


PACE 

VI.— PUBLIC  AND  PRIVATE  MANAGEMENT    ...       136 

We  should  expect  to  find  private  management  is,  on  the 
average,  somewhat  more  efficient  and  decidedly  more  economi- 
cal than  public  management. 

(i)  When  Corporations  and  Boards  are  compared  (2)  it  appears 
that  Boards  may  be  selected  from  a  wider  field  ;  (3)  and,  on  account 
of  the  methods  of  election,  (4)  and  of  re-election,  will  normally 
contain  more  business  men.  (5)  With  regard  to  the  influences 
acting  on  managing  bodies,  (6)  voters  being  consumers,  (7)  and  the 
ease  of  raising  money,  may  lead  to  extravagance  ;  (8)  whilst  risks 
being  thrown  compulsorily  on  all  ratepayers  (9)  and  a  want  of  initia- 
tive, may  lead  to  uneconomical  caution  in  municipal  enterprise.  (10) 
Progress  in  Municipal  Trade  may  be  checked  by  the  inconvenience  of 
Local  Government  areas,  (11)  or  by  the  difficulties  connected  either 
with  joint  municipal  enterprises,  (12)  or  with  work  outside  municipal 
areas.  (13)  Consequently  private  capital  will  be  invested  in  enter- 
prises capable  of  yielding  a  larger  return.  (14)  Low  salaries, 
(15)  and  promotion  by  seniority,  (16)  and,  perhaps,  more  broken 
employment,  make  municipal  officials  somewhat  less  efficient  and 
most  costly  ;  (17)  whilst  other  influences  make  them  more  powerful. 
(18)  Slack  discipline,    (19)   and    various  other   influences   tend   to, 

(20)  and    certainly  do   make   the    municipal    labour    bill    higher. 

(21)  The  economy  of  private  trade  is  due  to  the  stimulus  of  personal 
gain,  (22)  an  influence  less  felt  in  monopolies.  (23)  Municipal  in- 
spectors will  criticise  private  trades  more  keenly.  (24)  Shareholders 
can  indicate  their  discontent  by  selling.  (25)  The  main  question  as 
to  monopolies  is  as  to  the  remedy  of  grievances.  (26)  Councillors 
give  their  services  for  nothing.  (27)  Private  trade  is,  on  the  whole, 
likely  to  be  more  economically  managed,  (28)  a  result  which,  if 
admitted,  condemns  the  municipalisation  of  competitive  trades ; 
whereas,  as  to  monopolies,  the  advantages  of  Municipal  Trade  have 
to  be  weighed  against  this  and  other  disadvantages. 


VII.— RISKS  AND  GAINS 173 

No  gain  is  made  by  Municipal  Trade  unless  a  risk  is  run ; 
and  taking  the  more  economical  management  of  private  trade 
into  account,  we  should  on  a  priori  grounds  expect  to  find 


ANALYSED   CONTENTS  xv 

that  communities   have  gained  nothing  financially  by  their 
municipal  trading  enterprises. 

(i)  Municipal   finance   will  first  be   discussed  without  reference  to 
figures.     (2)  The  question  is  not  simply  whether  a   profit  will  be 
made;     (3)  for  when  the  word  "profit"  is  defined,    (4)  it  will  be 
seen  that  we  want  to  ascertain  the  gains.,  not  the  profits.     (5)  The 
gross  income   of  private  companies   is   paid  away   in   {a)   working 
expenses,  {b)  payments  to  Local  Authorities,  and  {c)  dividends,  etc. 
(6)  As  to  {a)  the  net  profits  will  diminish  on  municipalisation  if  the 
management  is  less  economical.     (7)  As  to  {b)  municipal  industries 
must  be  taxed  like  private  industries.     (8)  Rents  are  a  more  important 
item   amongst   the   payments  to  Local   Authorities  ;   (9)  and   rents 
formerly  received,  (10)  or,  rather,  rents  which  might  now  be  obtained, 
(11)  as  well  as  an  allowance  for  all  services  which  companies  might 
be  forced  to  render  gratuitously,  should  be  deducted  from  the  net 
profit  to  find  the  gain.     (12)  As  to  (c),  questions  connected  with  risk 
and  rate  of  interest  have  to  be  investigated.     (13)  The  case  of  going 
works  being  bought  will  be  first  considered.     (14)  When  borrowed 
money  is  invested,  no  gain  can  be  made  unless  a  risk  is  run  ;  (15)  and 
this  law  is  applicable  to  Municipal  Trade.     (16)  Municipal  prestige, 
however,  does  make  some  little  gain  possible  without  a  corresponding 
risk.     (17)  A  part  of  municipal  trading  profits  should  be  treated,  not 
as  a  gain,  but  as  an  insurance  against  losses  (18)  sustained  in  any 
municipal  enterprise  undertaken  by  the  same  Local  Authority.     (19) 
The  gains  made  by  investing  borrowed  money  are  due  to  either  excep- 
tional knowledge  or  luck.     (20)  As  exceptional  knowledge  cannot  be 
claimed   by    Local   Authorities,   the   financial   results   of  municipal 
trading  is  largely  a  matter  of  chance.     (21)  For  this  reason,  single 
instances  of  success  or  failure  tell  but  little  ;   (22)  for  the  element  of 
risk  or  chance  is  never  absent.     (23)  The  foregoing  arguments  are 
also  applicable  to  municipal  trades  initiated  by   Local  Authorities. 
(24)  In  considering  the  capture  of  the  unearned  increment,   (25)  the 
effect  on  prices  of  the  concessions  granted  must  be  held  in  view. 

(26)  Sliding   scales    of  prices    do    not    altogether   meet   the    case. 

(27)  The  unearned  increment  is  captured  equally  well  by  terminable 
concessions  or  by   Municipal  Trade,  whether  the  works  are  built 

(28)  or  bought  by  Local  Authorities.  (29)  Increments  can  be 
captured  by  violating  existing  bargains,  (30)  and  concessions  should 
always  contain  provisions  for  the  necessary  readjustments  of  prices, 
etc.  (31)  It  is  difficult  to  decide  the  price  to  be  paid  for  fraudulently 
acquired  concessions  ;  (32)  but,  in  all  other  cases,  it  should  be  decided 
by  the  value  in  the  market.     (33)  Summary  of  Chapter. 


xvi  ANALYSED   CONTENTS 


PAGE 

VIII.— MUNICIPAL  STATISTICS 207 

Turning  to  facts  and  figures  in  order  to  check  these  theoretical 
conclusions,  the  Local  Government  Board  Returns  afford  the 
best  info7'matio7t  available ;  but  the  more  these  Returjis  ai^e 
studied,  the  less  reliable  they  appear  to  be  as  guides  for  future 
action. 

(i)  Reliable  statistical  results  would  be  more  satisfactory  than 
theoretical  conclusions.  (2)  An  increase  of  remunerative  loans 
appears  to  be  correlated  with  an  increase  of  rates  ;  though  the 
cause  is  obscure.  (3)  An  abstract  of  the  financial  results  of  English 
municipal  trades  for  four  years  is  given  ;  (4)  and  figures  repre- 
senting the  net  profits  are  thus  obtained.  (5)  The  future  as  well  as 
the  existing  net  profits  must  be  considered.  (6)  Percentages  cannot 
be  usefully  calculated  on  outstanding  debts.  (7)  Gross  profits 
should  be  calculated  as  percentages  of  the   total  capital  provided. 

(8)  Existing  net  profits  are  of  little  use  as  guides  for  future  action  ; 

(9)  but  an  estimated  prospective  net  profit  on  gas-works  can  be 
calculated  from  existing  gross  profits,  (10)  a  calculation,  however, 
involving  possibly  erroneous  assumptions.  (11)  Gas-works  municipal- 
ised in  years  gone  by  are  now  more  profitable  than  gas-works  recently 
municipalised.     (12)  As  regards  the  total  reproductive  undertakings, 

(13)  a  figure  representing  the  estimated  prospective  net  loss  is  given. 

(14)  Thus  figures  indicating  the  required  results  can  be  obtained 
from  these  returns.  (15)  But  can  they  be  relied  on?  (16)  As  regards 
gas-works  the  results  have  been  shown  to  be  faulty,  (17)  and  an 
endeavour  has  been  made  to  correct  them.  (18)  As  to  average 
results,  certain  items  of  expenditure  are  said  not  to  have  been 
properly  charged.  (19)  There  is  some  justification  for  charging 
depreciation  on  a  lower  scale  in  Municipal  Trades  ;  (20)  but,  if  this 
has  been  done,  the  foregoing  results  require  correction  ;  (21)  because, 
inter  alia,  Municipal  Trade  is  in  its  infancy.  (22)  There  are  reasons 
for  believing  that  the  capital  has  been  overstated,  (23)  and  that  it  has 
been  understated.  (24)  To  estimate  the  gains,  the  net  profits  must 
be  increased  by  the  cost  of  inspection,  (25)  and  diminished  by  the 
amount  of  possible  rents  ;  (26)  a  very  important  deduction. 
(27)  These  hypothetical  rents  will,  in  the  absence  of  perpetual 
concessions,  increase  pari  passu  with  municipal  profits.  (28)  Past 
experience  is  unreliable  as  a  guide  for  the  future  because  it  is 
scanty,  (29)  and  because  of  changes  in  the  rate  of  interest  on 
loans.  (30)  The  greater  profit  yielded  by  the  older  municipalisa- 
tions  does  not  indicate  that  profits  will  increase  to  that  extent  in 
future  enterprises,  (31)  because  industries  tend  to  die  out,  (32)  because 


ANALYSED   CONTENTS  xvii 


the  increase  of  population  may  not  be  maintained,  (33)  and  because, 
as  regards  individual  industries,  the  old  enterprises  were  more 
profitable  because  more  risk  was  involved.  (34)  In  the  foregoing 
discussion  little  reference  has  been  made  to  price  and  quality. 


IX.— PRICE  AND  QUALITY      .  247 

The  doubt  as  to  the  reliability  of  these  Statistics  is  greatly 
increased  if  questions  connected  with  price  and  quality  are 
taken  into  consideration.  A  nd  a  genei'al  conclusion  is  reached 
that  the  probability  of  making  a  gaitt  should  never  be  held 
out  as  a  legitimate  inducement  to  cities  to  adopt  Alufiicipal 
Trade. 


(i)  The  gain  to  the  community  from  municipal  trades  is,  to  a 
large  extent,  independent  of  the  level  of  prices  charged  by  Local 
Authorities.  (2)  The  results  obtained  in  the  preceding  chapter  can 
only  be  objected  to  (3)  on  the  ground  that  the  relative  level  of  prices 
in  municipal  and  private  trade  affects  the  question  of  possible  rents. 
(4)  Can  we  estimate  the  gains  to  the  ratepayers  and  to  the  con- 
sumers separately,  and,  by  combining  the  results,  find  the  gain  to 
the  community  ?  (5)  As  to  the  estimation  of  the  gain  to  the  consumer, 
(6)  local  circumstances  greatly  affect  the  prices  of  gas,  (7)  and 
tramways  fares,  etc.  (8)  Comparisons  between  prices  charged  in 
pairs  of  towns  may  tell  unduly  in  favour  of  Municipal  Trade.  (9)  If 
separately  considered,  the  reductions  in  prices  made  by  municipalities 
tell  but  little.  (10)  The  rents  actually  paid  by  private  proprietors, 
(11)  the  length  of  their  concessions,  (12)  and  the  risk  run  by  them, 
must  all  be  allowed  for  in  all  comparisons  of  prices.  (13)  Local 
Authorities,  who  have  built  or  bought  works,  have,  in  effect,  granted 
to  themselves  perpetual  concessions.  (14)  In  short,  the  difficulties 
connected  with  all  methods  of  comparing  prices  are  at  present 
almost  unsurmountable.  (15)  Thus  neither  as  regards  prices,  (16)  nor 
as  regards  quality,  can  we  say  which  way  the  balance  of  argument 
tells.  (17)  Enquiries  as  to  the  financial  results  of  Municipal  Trade 
must  involve  the  consideration  in  detail  of  questions  of  price  and 
quality,  (18)  and  if  these  considerations  are  omitted,  the  results 
are  valueless  as  regards  its  eftects  on  the  community  as  a  whole. 
(19)  Do  statistics  confirm  the  theoretical  conclusions  arrived  at  in 
chap.  vii.  ?  (20)  Average  results  should  be  mainly  relied  on, 
(21)  though  they  may  be  vitiated  by  the  effect  of  causes  affecting 
many  industries.  (22)  Are  conclusions  based  on  a  priori  reason- 
ing, or  are  those  based  on  statistics  most  to  be  relied  on  ?  (23)  Some 
circumstances  merely  throw  doubt  on  statistical  results  ;  (24)  others 


xviii  ANALYSED   CONTENTS 

PAGI 

make  them  appear  too  discouraging ;  (25)  but  possible  rents, 
(26)  and  many  other  considerations  indicate  that  they  are  too 
encouraging.  (27)  Thus  statistics  do  not  refute  a  priori  reasoning, 
(28)  The  contrast  between  the  statistical,  and  (29)  the  theoretical 
conclusions  is  illustrated  in  another  manner,  (30)  an  illustration 
which  indicates  that  no  material  gain  or  loss  has  directly  resulted 
from  Municipal  Trade,  although  taxation  is  now  being  increased 
thereby.  (31)  That  this  loss  will  become  a  gain  in  time  is  no 
argument  for  Municipal  Trade.  (32)  Indirect  financial  results 
must  now  be  considered.  (33)  Though  tramways,  etc.,  do  no 
doubt  raise  the  value  of  rateable  property,  (34)  Municipal  Trade, 
even  if  it  were  more  progressive  than  private  trade,  might  not 
increase  the  revenue  ;  (35)  and,  as  it  is  less  progressive,  it  cannot 
do  so.  (36)  To  spend  public  money  in  order  to  raise  the  value  of 
private  property  is  dangerous.  (37)  Municipal  Trade  tends  to 
encourage  municipal  extravagance.  (38)  Municipal  Trade,  if  exten- 
sively practised,  would  materially  diminish  the  public  revenues,  and 
no  industry  should  be  municipalised  in  the  hope  of  making  a  gain. 


X.— COMPETITION  AND  PROTECTION         .         .         .         .284 

Municipal  Trade  diminishes  competition,  and  checks  progress. 
The  more  competitive  the  trade,  the  more  disadvantageous  will 
be  the  results  of  its  being  managed  by  a  public  body. 

(i)  Does  Municipal  Trade  do  harm  by  lessening  competition? 
(2)  As  this  volume  does  not  deal  with  Socialism  generally,  (3)  the 
advantages  of  competition  and  free  trade  will  be  but  briefly  sketched  ; 
(4)  advantages  which  are  not  outweighed  by  the  serious  correspond- 
ing disadvantages.  (5)  Domestic  water  supply  is  the  only  completely 
non-competitive  Municipal  Trade.  (6)  Local  Authorities  will  always 
protect  themselves  from  competition  as  much  as  possible.  (7)  When 
two  trades  are  managed  by  one  municipality  there  is  no  true  com- 
petition between  them.  (8)  Municipalities  obtain  protection  more 
readily  than  private  traders  because  their  services  are  said  to  be  for 
the  public  good  and  at  the  public  expense.  (9)  Local  Authorities  can 
hinder  private  electric  enterprises,  etc.,  by  refusing  to  give  assent, 
(10)  or  by  obtaining  Provisional  Orders  and  doing  nothing,  (11)  or 
by  opposing  Bills  in  ParHament.  (12)  Competition  between  public 
and  private  trade  is  not  on  even  terms  ;  (13)  and  the  mere  fear 
of  municipal  opposition  checks  private  enterprise.  (14)  Allied 
industries  may  be  permanently  injured  by  municipal  opposition. 
(15)  Summary  of  the  harmful  effects  of  Municipal  Trade  in 
limiting  competition  in  the  case  of  industries  tending  to  become 
monopolies.     (16)  The   effects  on  competitive  trade  must   also   be 


ANALYSED   CONTENTS  xix 


considered.  (17)  The  desire  and  probably  the  power  to  obtain 
protection  will  increase  with  any  increase  in  the  field  of 
Municipal  Trade,  (18)  and  any  limitation  of  competition  will  be 
proportionately  more  harmful  the  more  the  trades  municipalised 
are  naturally  free.  (19)  To  limit  competition  would  probably  be 
injurious  in  the  case  of  the  sale  of  goods,  (20)  and  still  more 
injurious  in  the  case  of  the  manufacture  of  goods,  (21)  and  most 
injurious  as  regards  the  initiation  and  construction  of  works. 
(22)  Municipal  constructive  enterprise  produces  centralising  influ- 
ences, (23)  which  are  especially  harmful  because  industrial  initiative 
in  a  nation  is  a  slow  growth.  (24)  Municipal  Trade  is  most 
frequently  undertaken  when  there  is  only  competition  in  production, 
(25)  and  in  these  circumstances  there  is  less  risk  of  heavy  losses  and 
less  chance  of  large  profits  than  when  there  is  competition  in  con- 
struction. (26)  Municipalities  are  less  likely  than  private  proprietors 
to  make  rapid  advances  in  competitive  industries,  because  great 
business  capacity  and  initiative  are  required,  (27)  because  public 
funds  are  risked,  (28)  because  they  are  less  free  to  make  bargains, 

(29)  and  because  their  work  will  be  confined  within  given  areas. 

(30)  Many  objections  previously  urged  against  Municipal  Trade 
apply  with  special  force  in  the  case  of  competitive  trades  ;  (31)  whilst 
the  arguments  in  its  favour  are  considerably  weaker.  (32)  Municipal 
Trade  cannot,  however,  be  confined  to  monopolies,  (33)  and  the 
certainty  of  competition  arising  tells  against  the  municipalisation 
of  all  industries  except  domestic  water  supply.  (34)  Summary  of 
conclusions  with  regard  to  Jhe  municipalisation  of  trades  which 
do  not  tend  to  become  monopolies. 


XL— MUNICIPAL  HOUSE-BUILDING       ...  .319 

House-building  is  selected  as  an  example  of  the  way  in  which 
all  the  arguments  for  and  against  Municipal  Trade  should 
be  weighed  before  a  decision  is  arrived  at  in  the  case  of  each 
separate  industry ;  the  arguments  ifi  this  case  telling  strongly 
against  this  branch  of  Municipal  Trade. 

(i)  Only  questions  connected  with  the  choice  between  municipal 
and  private  enterprise  will  here  be  considered.  (2)  The  housing 
question  is  complicated  because  various  objects  are  aimed  at  ; 
(3)  and  because  different  trades  may  be  municipalised  in  different 
cases.  (4)  Municipal  Trade  gives  no  assistance  in  dealing  with 
questions  connected  with  land  tenure  ;  (5)  and  the  refusal  of  private 
firms  to  build  on  cleared  areas  is  no  argument  in  its  favour. 
(6)  Any  sanitary  regulations  can  be  enforced  in  the  construction  of 


XX  ANALYSED   CONTENTS 


PAGE 


houses  by  private  proprietors  ;  and,  for  the  same  cost  houses,  built 
by  municipalities  would  not  necessarily  be  more  healthy.  (7)  Muni- 
cipalities can  do  little  or  no  good  by  example.  (8)  When  slum  areas 
have  been  rehoused  by  Municipal  Trade,  few  of  the  individuals 
dehoused  have  been  rehoused,  and  it  has  therefore  been  urged  that 
municipal  house-building  is  a  failure.  (9)  But  the  same  results  as  to 
rehousing,  which  are  to  a  certain  extent  beneficial,  would  probably 
have  followed  the  erection  of  houses  by  private  firms  on  slum  areas. 
(10)  Compulsory  housing  operations  are  generally  costly  ;  (11)  and 
the  money  thus  spent  acts  in  part  as  the  award  of  a  bonus  both  to 
the  manufacturer  and  to  the  workman  to  remain  in  central  crowded 
areas.  (12)  Local  Authorities  should,  therefore,  be  allowed  greater 
discretion  as  to  rebuilding  ;  (13)  a  discretion  which  would  tend  to 
lessen  the  amount  of  Municipal  Trade  undertaken.  (14)  Municipal 
housing  operations  are  more  costly  than  private  enterprises  because 
less  attention  is  paid  to  rent  earning,  (15)  and  because  the  manage- 
ment is  less  business-like.  (16)  It  is  impossible  to  estimate  accurately 
from  statistics  the  losses  actually  incurred  in  municipal  housing- 
operations,  (17)  or  the  losses  which  would  have  been  incurred  had 
the  work  been  entrusted  to  private  trade.  (18)  Our  conclusions  must 
be  largely  guided  by  common-sense  considerations ;  and  such  con- 
siderations tell  against  municipal  house-building.  (19)  The  effect 
of  universal  municipal  house-building  would  be  disastrous  ;  (20)  and, 
if  partially  undertaken,  it  hampers  private  trade,  and  may  diminish 
the  total  number  of  houses  available.  (21)  Municipal  house-owning 
greatly  increases  the  probability  of  municipal  corruption  ;  (22)  and 
the  balance  of  argument  is,  on  the  whole,  strongly  against  this  form 
of  Municipal  Trade. 


XII.— LEGISLATION   WITH  REFERENCE  TO    MUNICIPAL 
TRADE 346 

Looking  to  the  future^  a  reformed  mnnicipal  trade  should 
be  compared  with  a  refo7'med  private  trade.  Pt'ofit-making 
by  municipalities  should  not,  on  economic  grounds,  be  pro- 
hibited;  but  debts  should  be  more  rapidly  redeemed  when 
profits  are  being  made.  Many  minor  reforms  are  possible ; 
but  the  disadvantages  connected  with  Municipal  Trade 
cannot  be  materially  lessened  by  legislation. 

(i)  Possible  legislation  with  regard  both  to  Municipal  and  to  private 
Trade  must  be  considered.  (2)  What  prices  should  be  charged  by 
municipalities  ?  (3)  Sinking  funds  must  be  instituted ;  (4)  but 
prices   must   not   be  so  low  as  to  throw  any  of  the  cost  of  these 


ANALYSED   CONTENTS  xxi 

sinking  funds  on  the  rates.  (5)  High  prices  charged  by  Local 
Authorities,  though  they  are  like  indirect  taxation,  are  not  therefore 
necessarily  objectionable  ;  (6)  except  on  the  ground  that  indirect 
competitors  are  thus  benefited.  (7)  Low  prices  may  be  objection- 
able in  Municipal  Trade  on  the  ground  that  they  amount  to  the 
award  of  a  bounty  to  the  consumer.  (8)  Pi'ices,  therefore,  in 
Municipal  Trade  should  bear  the  same  proportion  to  the  cost  of 
production  as  is  the  case  in  private  trade.  (9)  The  rent  paid  by 
private  proprietors  for  concessions  should  be  regarded  partly  as  a 
rent  and  partly  as  a  tax  on  the  goods  sold  ;  (10)  and  the  fact  that 
such  rents  can  readily  be  obtained  does  not  prove  that  they  are  un- 
objectionable. (11)  Such  rents,  if  excessive,  are  no  less  objection- 
able if  included  in  the  costs  (or  the  profits)  of  municipal  trades. 
(12)  Prices  should  not  be  lowered  because  of  the  low  rate  of  interest 
paid  on  municipal  loans  ;  (13)  and  prices  should  not  be  raised  to 
cover  any  increase  of  wages  above  the  normal  level.  (14)  The 
safest  rule  is  that  no  net  profit  should  be  made  whilst  the  full  pay- 
ment is  being  made  in  respect  of  interest  and  repayments  of 
principal.  (15)  When  the  debts  are  wholly  or  largely  redeemed, 
prices  must  be  considerably  reduced  or  a  considerable  net  profit 
must  be  made.  (16)  Of  these  alternatives,  the  making  of  a  profit 
should  be  selected  because  low  prices  either  check  progress,  (17)  or 
act  as  a  bounty.  (18)  No  serious  objections  can  be  raised  against 
existing  sinking  fund  arrangements,  (19)  except  that  debts  might 
with  advantage  be  redeemed  more  rapidly  when  profits  are  avail- 
able. (20)  Summary  of  conclusions  as  to  profits  and  prices  ; 
(21)  conclusions  which  could  hardly  be  enforced  by  law.  (22)  To 
prohibit   the   making  of   net   profits   would,   therefore,    be  unwise. 

(23)  Risk  to  the  unbenefited  ratepayer  cannot  be  avoided  by  law. 

(24)  Too  low  prices  are  a  more  probable  contingency  than  too  high 
prices.  (25)  Municipalities  often  trade  outside  their  areas,  (26)  and 
preferential  charges  should  be  prohibited.  (27)  Municipal  trades 
covering  several  districts  should  be  placed  under  Joint  Boards. 
(28)  Legislative  safeguards  against  corruption,  (29)  and  against  the 
evils  of  centralising  influences  are  impracticable.  (30)  Muni- 
cipalities should  not  be  allowed  to  acquire  objectionable  powers 
(31)  and  government  auditors  should  be  appointed.  (32)  No  legisla- 
tion affecting  Municipal  Trade  would  materially  affect  the  com- 
parison between  it  and  private  trade. 


xxii  ANALYSED   CONTENTS 


PAGE 


XIII.— LEGISLATION  AFFECTING  PRIVATE  TRADE         .  384 

On  the  other  hand,  much  might  be  done  to  Icssett  the  evils 
connected  with  the  retention  of  monopolies  in  private  hands, 
though  not  without  some  corresponding  disadvantages. 

(i)  Possible  legislation  affecting  competitive  private  trades  need  not 
be   discussed.     (2)  Reform   is   needed  with   regard   to   the  private 
management  of  trades  tending  to  become  monopolies.     (3)  Legisla- 
tion concerning  the  granting  of  concessions  in  future  will  first  be 
considered.     (4)  The  demand  for  rapid  progress  is  antagonistic  to 
the  demand  for  low  prices  or  light  taxation.      (5)  In  England  the 
promoter  has  been   crippled,   whilst  the   consumer   has   not   been 
sufficiently  safeguarded.     (6)  In  questions  concerning  the  granting 
of  concessions,  (7)  and  in  disputes  as  to  the  terms  of  concessions 
after  they  have  been  granted,  Local  Authorities  and  promoters  may 
represent  the  counsel  on  the  two  sides,  the  one  being  prepared  to 
advocate  the  interests  of  the  citizens,  and  the  other  to  advocate  the 
interests  of  the  private  investors.     (8)  The  Local  Authority  cannot 
well  be  the  judge  as  well  as  the  counsel.     (9)  Technical  knowledge 
is  necessary  for  the  decision  of  these  questions.     (10)  Some  Govern- 
ment office  should  be  represented  at  enquiries  concerning  conces- 
sions ;  (11)  but  the  final  decision  should  rest  with  a  Commission, 
(12)  of  a  type  which  does  not  exist  at  present  in  England.     (13)  De- 
scription of  the  Massachusetts  Commission.     (14)  A  final  appeal  to 
Parliament  must  exist;  but  its  use  should  be  restricted.     (15)  The 
consent  of  the  Local  Authority  should  not  be  essential.     (16)  Con- 
cessions are  now  granted   in   accordance  with  no  fixed  principles. 
(17)  Monopolies  may  with  proper  safeguards  be  granted  to  com- 
panies,  and   neither   other   companies   nor   (18)   Local   Authorities 
should  be  permitted  to  compete.     (19)  What  should  be  the  length 
of   the   concession   period?     (20)   Perpetual    concessions    will    not 
materially  hinder  the  municipalisation  of  industries,   (21)  and,   as 
at  present  granted,  they  are  in  many  ways  objectionable.     (22)  Con- 
cessions for  short  terms  have  produced  harmful  effects  ;  (23)  but 
it   does    not    follow  that    to    lengthen    them   would    be    the    best 
reform.      (24)    If,   when   companies   are   bought   out,   shareholders 
are   likely   to   receive   less    than    their   original   investment,   a  tax 
will  inevitably  be  thrown  on  the  consumer  during  the  concession 
period.     (25)  The  valuation  must  be  such  as  to  attract  capital  freely. 
(26)  The  valuation  should  be  more  liberal,   (27)  and  municipalities 
should  have  the  right  of  purchase  at  all  times  ;  (28)  though  there 
may  be  exceptions  to  this  rule.     (29)  The  danger  of  corruption  will 
be  lessened  by  the  establishment  of  a  Commission.     (30)  Terminable 
concessions  had  better  include  sliding  scales  of  prices  and  variable 


ANALYSED   CONTENTS  xxiii 


PAGE 


rents,  (31)  one  or  both  as  the  case  may  require.  (32)  The  Com- 
mission might  be  called  in  to  arbitrate  as  to  prices.  (33)  Statutory 
limitations  of  dividends  are  never  advisable.  (34)  Precautions  should 
be  taken  against  over-capitalisation.  (35)  Powers  of  inspection  of 
works  and  documents  of  private  proprietors,  owning  municipal 
concessions  should  be  retained  ;  (36)  and  the  Commission  should 
also  have  power  to  inspect  all  Municipal  Trades.  (37)  Some  of  the 
work  in  the  streets  might  be  owned  and  repaired  by  municipalities. 
(38)  Summary  of  recommendations  as  to  the  granting  of  new  con- 
cessions in  future.  (39)  Terminable  concessions  can  be  substituted 
for  perpetual  concessions  ;  (40)  and  this  should  be  done  if  the  result 
would  be  beneficial,  (41)  the  Commission  deciding  on  the  compensa- 
tion to  be  paid.  (42)  The  foregoing  must  be  regarded  as  tentative 
suggestions.  Note  on  the  method  of  valuation  for  terminable  con- 
cessions. 


XIV.— CONCLUSION 43° 

Two  questions  have  to  be  considered — (/)  What  trades  should 
Parliament  permit  mufiicipalities  to  manage  ?  (2)  What 
trades  ivould  municipalities  ivisely  undertake  to  manage  ? 
To  neither  question  can  a  very  definite  answer  be  giveti.  But 
Local  Authorities  are  advancing  too  rapidly  iti  the  path  of 
Municipal  Trade.  Reforms  are,  therefore,  needed — (/)  to 
more  effectually  safeguard  the  consumer  and  the  ratepayer 
when  monopolies  are  managed  by  private  proprietors ;  {2)  to 
check  excessive  Municipal  Trading ;  and  (j)  to  render 
Municipal  Trade  as  little  harmful  as  possible.  What  is 
needed  most  of  all  is  an  increase  in  the  interest  of  the  public 
in  municipal  affairs. 

(i)  Brief  summary  of  the  arguments  for  and  against  Municipal 
Trade  generally,  (2)  and  in  the  case  of  industries  which  tend  to 
become  monopolies.  (3)  Opinions  differ  greatly  as  to  where  the 
line  should  be  drawn,  (4)  and  no  general  formula  can  be  suggested. 
(5)  There  are  two  distinct  questions — What  municipal  trades  should 
Parliament  permit?  (6)  And  what  trades  should  Municipalities 
undertake  ?  (7)  Economic  and  political  safeguards  suitable  to 
prevent  unwise  municipal  trading  must  be  considered.  (8)  First 
amongst  such  checks  are  certain  reforms  affecting  private  trade  ; 
(9)  of  which  a  summary  is  given.  (10)  A  limitation  of  municipal 
debts  would  have  certain  advantages  ;  (11)  and  certain  disadvantages. 


xxiv  ANALYSED   CONTENTS 

PA( 

(12)  A  referendum  on  loans  would  be  a  better  reform.  (13)  The 
prohibition  of  profit-making  has  been  advocated.  (14)  The  com- 
pounding system  should,  if  possible,  be  abolished  ;  (15)  and  it  would 
be  logical  to  entrust  municipal  trades  to  representative  bodies 
elected  ad  hoc.  (16)  Reforms  are  also  required  in  order  to  make 
such  Municipal  Trade  as  is  undertaken  less  objectionable  ;  (17)  and 
the  whole  question  should  be  thoroughly  investigated.  (18)  The 
reaction  against  individualism  has  gone  too  far.  (19)  What  is 
most  of  all  needed  is  public  interest  in  Municipal  afTairs. 


APPENDIX 453 

Report  of  Joi7it  Coinniittee  of  Lords  and  Con inions  of  1903, 
dealing  chiefly  with  Municipal  Accounts  and  Municipal 
Audit. 


MUNICIPAL  TRADE 


HISTORICAL    SKETCH 

(1)  "  Municipal  Trade  "  has  been  selected  as  the  title 
of  this  volume  because  it  indicates,  in  the  simplest 
manner,  the  subject  matter  to  be  discussed.  It  is 
not,  therefore,  necessary  to  attempt  to  give  a  rigid 
definition  of  the  meaning  of  these  words.  It  will  be 
sufficient  to  remark  that  they  are  intended  to  cover 
all  enterprises  managed  by  Local  Authorities  which, 
when  they  are  undertaken  by  private  traders,  are,  as 
a  rule,  worked  with  the  object  of  making  a  profit ; 
and  that  under  the  title  of  Local  Authorities  are 
included  City  Corporations,  Borough  Councils, 
County  Councils,  and  District  Councils.  Municipal 
Trade  is,  no  doubt,  not  altogether  a  happy  expres- 
sion ;  for  it  gives  the  impression  that  the  Local 
Authorities  concerned  are  also  mainly  interested  in 
the  question  of  profit  and  loss,  which  is  very 
often  not  the  case.  The  phrase  is,  however,  now 
so  well  understood  that  no  confusion  is  likely  to 
arise  from  its  use. 


2  HISTORICAL   SKETCH  [chap.  i. 

(2)  AVhat  are  the  trades  which  can  be  managed 
by  Local  Authorities  with  advantage  to  the  com- 
munity at  large  ?  This  is  the  main  question  to  be 
discussed  in  this  volume.  JNIunicipal  extravagance 
has  no  -doubt  been-  coupled  with  INlunicipal  Trade  in 
many  recent  „  discussions ;,  for  some  of  the  influences 
which  are  making  -for  the  one  are  also  making  for  the 
other.  It  is,  however,  to  be  noted  that  municipal 
trading  may  be  undertaken  without  any  municipal 
extravagance,  and  that  municipal  extravagance  may 
exist  without  any  municipal  trading.  By  adding 
extravagance  to  the  subject  matter  for  enquiry,  a 
much  wider  field  would  be  opened  out ;  but  I  have 
thought  it  best  to  confine  myself  strictly  to  INIunicipal 
Trade  in  this  volume.  Before  passing  on  to  consider 
the  arguments  for  and  against  the  management  of 
remunerative  undertakings  by  Local  Authorities,  a 
brief  historical  sketch  will  be  given  of  the  rise  and 
development  of  JMunicipal  Trade ;  mainly  with  the 
object  of  showing  that  it  is  difficult  to  say  at  what 
particular  stage  in  the  e^  olution  of  modern  municipal 
functions  it  may  fairly  be  said  that  municipal 
trading  commenced ;  of  pointing  out  that,  whilst 
Municipal  Trade  is  no  recent  introduction,  it  has 
been  enormously  developed  during  the  last  few 
years  ;  and,  lastly,  of  indicating  that  this  development 
is  proceeding  more  rapidly  in  England  than  in  any 
other  important  country.  In  a  few  German  cities 
INIunicipal  Trade  is  perhaps  carried  to  greater  lengths 
than  in  any  English  town ;  but,  as  regards  a  com- 
parison between  the  whole  of  the  two  countries,  the 
foregoing  statement  is,  I  believe,  correct. 

Readers  familiar  with  the  literature  of  municipal 
affairs  are  recommended  to  omit  the  remainder  of 


CHAP.  I]  MARKETS  3 

this  chapter,  as  it  contains  nothing  which  has  not 
been  recounted  more  fully  elsewhere.^ 

(3)  Markets. — The  actual  number  of  the  different 
kinds  of  enterprises  which  have,  up  to  the  present 
time,  been  extensively  municipalised  is  small,  and  it 
will  be  convenient  in  this  historical  sketch  to  consider 
each  one  separately,  taking  them  as  far  as  possible  in 
the  chronological  order  of  theu'  adoption  as  municipal 
trades.  Markets  may  therefore  appropriately  head 
the  list,  for  they  have  been  owned  by  some  German 
towns  for  over  a  thousand  years,  and  many  English 
towns  hold  their  market  rights  and  properties  by 
"  ancient  charter."  In  no  country,  however,  is  there 
more  than  a  small  number  of  ancient  public  markets, 
or  indeed  of  any  other  long  established  remunerative 
enterprises ;  for  it  was  not  until  the  middle  of  the 
nineteenth  century  that  the  movement  in  favour  of 
buying  up  any  of  the  rights  of  private  owners  began 
to  make  itself  felt.  At  about  that  time  several  of  our 
large  towns  acquired  markets  by  puroliase  from  the 
Lords  of  the  INIanor,  and  the  development  of  this 
class  ot  enterprise  is  still  proceeding,  loans  for  this 
purpose  to  the  extent  of  over  £700,000  having  been 
sanctioned  in  England  and  Wales  during  the  years 
1895  to  1899.  The  owning  of  a  market  hardly,  it  is 
true,  appears  to  be  of  the  nature  of  trading,  and  at 
first  sight  it  may  be  thought  to  be  a  mistake  to 
include  this  enterprise  in  any  discussion  on  JNIunicipal 
Trade.  But  these  markets  are  often  very  lucrative 
properties,  and  when  we  find  that  the  more  recent 
developments  in  connection  with  municipal  markets 

^  Fairlie's  "Municipal  Administration,"  and  Shaw's  "Municipal 
Government  in  Great  Britain"  and  "Municipal  Government  in 
Continental  Europe,"  have  been  largely  used  in  compilation  of  thi« 
chapter. 


4  HISTORICAL   SKETCH  [chap.  i. 

include  slaughter-houses,  cold  air  stores,  ice  manu- 
factories, and  the  sale  of  "surplus"  ice,  and  that 
the  right  to  sell  the  ice  to  the  public  without 
restriction  has  been  demanded,  the  difficulty  of 
excluding  municipal  markets  from  municipal  trading 
becomes  apparent.^ 

(4)  Baths.  —  Municipal  bathing  establishments 
afford  another  instance  of  the  gi-adation  from  what 
certainly  is  not  trading  to  what  certainly  is.  Free 
public  baths,  in  the  first  instance  mere  open  bathing 
places,  have  been  established  for  several  centuries  in 
Germany ;  but,  as  in  the  case  of  markets,  it  can 
hardly  be  said  that  much  progress  was  made  in 
the  movement  in  favour  of  municipal  bathing 
establishments  before  the  year  1850.  In  184G  the 
English  Baths  and  A\^ash- Houses  Act  was  passed 
to  facilitate  the  establishment  of  public  baths  and 
laundries,  and  several  towns  soon  took  advantage  of 
its  provisions.  JNIunicipal  baths  are  now  commonly 
found  in  England,  the  United  States,  and  Germany, 
and  are  met  with  somewhat  less  frequently  in  France, 
though  Paris  is  ahead  of  London  in  having  opened 
school  baths  in  a  number  of  instances.  In  several 
English  towns  public  wash-houses  have,  moreover, 
been  provided,  where  family  washing  may  be  done. 
Glasgow  has  also  established  "a  general  laundiy 
"  business,  drawing  its  patronage  from  all  classes  of 
"  society,"  ^  whilst  Hastings  has  demanded  the  right 
to  own  and  let  out  bathing   machines.=^     The  town 

1  Rei)ort  from  the  Joint  Committee  of  Lords  and  Commons  on 
Municipal  Trading,  1900,  Q.  350,  In  future  referred  to  as  M.T.R.  The 
references  given  in  this  volume  are  frequently  given  merely  to  facilitate 
further  enquiries  on  the  part  of  any  reader  ;  and  ojiinions  both  for  and 
against  the  views  advocated  in  the  text  are  thus  referred  to. 

2  "Municipal  Government  in  Great  Britain,"  ShaAv,  p.  110. 

3  M.T.R.,  Q.  548. 


CHAP.  I.]  HARBOURS  5 

of  Harrogate,  following  the  example  of  several 
Continental  cities,  owns  and  manages  a  large  medical 
bathing  establishment,  and,  having  acquired  the 
power  to  provide  entertainments,  possesses  a  iirst- 
class  band,  the  object  being  to  attract  visitors. 

(5)  Harbours  and  Docks. — A  few  English  Local 
Authorities  have  dealt  with  harbours  for  over  three 
hundred  years ;  but,  probably  because  these  works 
were  initiated  when  municipal  bodies  wxre  less 
powerful  than  they  are  at  present,  we  noAV  fi'equently 
find  them  under  the  management  of  special  Boards 
or  Trusts.  On  these  Boards,  besides  the  repre- 
sentatives of  the  local  commercial  interests,  there 
are  usually  a  number  of  nominees  of  the  munici- 
palities concerned,  and  the  harbours  in  their  charge 
may  often  fairly  be  described  as  municipal  enter- 
prises. The  bulk  of  the  capital  expenditure  on  such 
undertakings,  as,  for  instance,  that  incurred  in 
the  deepening  of  rivers,  produces  no  profit  to  the 
managing  body,  involves  no  risk,  and  has  not, 
therefore,  the  characteristics  of  a  trade  investment. 
For  this  reason,  or  because  the  profit,  if  any  be 
made,  accrues  to  a  Trust  and  not  to  a  Local 
Authority,  we  find  that  in  1898  there  were  local 
debts  to  the  amount  of  over  £37,000,000  for 
harbours,  piers,  docks,  and  embankments,  a  large 
proportion  of  which  sum  was  not  included  in  the 
English  Local  Government  Returns  of  Reproductive 
Undertakings.  Amongst  these  local  debts  is  included 
the  sum  of  £5,000,000  contributed  by  the  city  of 
Manchester  to  the  Manchester  Ship  Canal  Com- 
pany. The  Corporation,  no  doubt,  hope  that  the 
general  prosperity  of  the  city  will  be  furthered 
by    this    great     undertaking ;     but,     whatever     the 


6  HISTORICAL  SKETCH  [chap.  i. 

object  of  the  loan,  the  consequejK?e  is  that  the 
ratepayers  of  INIanchester,  whether  they  individually 
wish  it  or  not,  must  share  to  a  certain  extent  in 
the  fortunes  of  a  commercial  company. 

Municipal  docks  and  harbours  exist  in  the  United 
States,  Germany,  and  Holland  ;  but  in  other  countries 
these  undertakings  are  more  frequently  managed  by 
the  Central  Governments. 

(6)  Piers,  Quays,  and  Ferries. — A  capital 
expenditure  of  over  £4,000,000  is  shown  in  a  recent 
Local  Government  Return  of  Reproductive  Under- 
takings under  the  heading  of  "  Piers,  Quays,  etc," 
a  sum  probably  included  in  the  above-mentioned 
debts  incurred  for  harbours,  etc.  Expenditure  on 
remunerative  ferries  is  also  included  under  this 
heading,  the  Birkenhead  Corporation  making  a  net 
pi'ofit  of  over  £10,000  a  year  from  this  source. 
The  Return  does  not  comprise  works  undertaken 
by  the  London  County  Council ;  but,  even  if  it 
had  done  so,  the  expenditure  on  the  ^Voolwich 
ferry  would  probably  not  have  been  included,  no 
payment  being  demanded  from  the  public  for  its 
use.  Working  a  ferry  for  a  profit  is  certainly 
a  trading  enterprise ;  whereas  any  expenditure 
of  money  on  running  a  free  ferry,  which  may  be 
defended  on  the  ground  of  its  analogy  to  the  ex- 
penditure on  building  a  free  bridge,  is  certainly  not 
a  commercial  venture. 

(7)  Water  Suiyply. — In  mediipval  times  many 
towns  controlled  the  primitive  water  supplies  then 
existing ;  and  several  JMunicipal  Corporations  claim 
to  have  undertaken  this  duty  at  a  \'ery  early  date. 
Southampton  leased  its  water  supply  from  a 
monastery  in  1440;  and  even  in  the  United  States 


CHAP.  I.]  WATER- WORKS  7 

we  find  that  the  pubhc  supply  of  water  at  Boston 
dates  back  as  far  as  1652.  But  these  facts  are  of 
interest  to  the  antiquary  rather  than  to  the  student 
of  Municipal  Trade ;  for  the  total  number  of  water- 
works in  the  hands  of  municipalities  before  the 
middle  of  the  nineteenth  century  was  in  fact  very 
small.  Before  that  time  a  large  number  or  private 
water  companies  existed,  one  of  the  oldest  being 
the  New  River  Company,  which  took  over  the 
then  existing  arrangements  from  the  London  oNIuni- 
cipal  Authorities  in  the  reign  of  James  I.,  and  greatly 
enlarged  the  supplies.  INIany  of  these  private  works 
have  now  been  bought  up  by  Local  Authorities, 
the  practice  of  acquiring  compulsorily  both  gas  and 
water-works  under  Parliamentary  powers  without 
the  consent  of  the  companies  concerned  having 
increased  to  an  "  enormous  extent"  during  the 
last  quarter  of  the  nineteenth  century.^ 

(8)  As  with  all  other  movements  connected 
with  Municipal  Trade,  the  large  towns  have  led  the 
way  in  England  in  the  municipalisation  of  water 
supplies.  In  1830  the  Corporation  of  Sheffield 
took  over  the  management  of  the  water-works. 
Manchester  acquired  the  property  of  a  private 
company  in  1847 ;  and  in  1879  tlie  Corporation 
of  that  city  bought  Thirlmere,  95  miles  distant, 
in  order  to  meet  the  increasing  demands  for  water. 
Glasgow  followed  much  the  same  course,  buying 
up  a  private  company  under  Parliamentary  powers 
acquired  in  1855,  and  in  1860  enlarging  its  supplies 
by  bringing  water  fi-om  Loch  Katrine,  34  miles 
distant.  Birmingham  municipalised  its  water  supply 
in  1874,  and  is  now  busily  engaged   in   completing 

1  M.T.R.,  Q.  613. 


8  HISTORICAL  SKETCH  [chap.  i. 

its  great  Elan  River  scheme ;  whilst  the  Liverpool 
Corporation  completed  the  connection  with  Lake 
Vyrnwy,  68  miles  distant,  in  1892.  Lastly,  the 
various  private  water  companies  serving  a  wide 
area  in  and  around  London  are  about  to  be  bought 
up  and  placed  under  a  Joint  Board,  on  which  many 
local  governing  bodies  are  to  be  represented ;  and 
now  only  6  out  of  the  29  towns  in  Great  Britain 
with  populations  of  over  100,000  receive  their  water 
supplies  from  companies.  The  smaller  Corporations, 
generally  speaking,  came  somewhat  later  into  the 
field,  and  have  been  less  active  in  this  direction ; 
only  226  out  of  519  INIunicipal  Boroughs  in  Great 
Britain  having  acquired  the  management  of  their 
water  supplies  by  1890.^ 

(9)  The  supply  of  water  is  now  by  far  the  most 
important  of  the  Municipal  Reproductive  Under- 
takings, the  total  capital  provided  in  England  and 
Wales  in  1902  being  about  £57,000,000  out  of  a 
total  of  over  £120,000,000  for  all  such  undertakings.^ 
To  show  how  recent  has  been  the  development  of 
this  class  of  municipal  enterprise  it  may  be  remarked 
that  about  £15,000,000  out  of  the  total  capital  pro- 
vided of  somewhat  over  £48,000,000  was  borrowed 
during  the  five  years  ending  in  1899.^ 

(10)  In  the  matter  of  water  supply,  cities  in  the 
United  States  and  Germany  have  followed  much 
the  same  course  as  English  municipalities.  In  1835 
Philadelphia  was  the  only  important  American  city 
with  a  municipal  water  supply;  whilst  in  1890, 
of  the  cities  with  a  population  of  over  30,000,  94 
had     municipal     water-works     as    against    35    with 

1  M.T.R.,  Q.  12, 

2  L.G.B.,  Return  No.  398  for  1902. 

3  M.T.R.,  Q.  938. 


CHAP.  1.3  GAS-WORKS  9 

private  works,  the  smaller  cities  having  a  somewhat 
larger  proportion  of  private  works.  All  German 
cities,  with  a  few  unimportant  exceptions,  now  own 
and  operate  their  water- works  ;  whilst  in  the  Latin 
countries  private  supplies  are  more  numerous. 

(11)  JNIany  municipalities  make  a  loss  on  their 
water -works,  evidently  regarding  profit  as  a 
secondary  consideration ;  in  England,  householders 
are  generally  charged  according  to  the  value  of  the 
house  to  which  the  supply  is  taken,  and  not 
according  to  the  amount  of  water  supplied ;  and  in 
some  French  towns  the  cost  of  supplying  water  is 
defrayed  by  a  tax  and  not  by  a  w^ater  rate.  All 
these  circumstances  make  the  supply  of  water  by  a 
municipality  unlike  an  ordinary  trade.  But  when, 
as  at  Glasgow,  hydraulic  power  works  are  added  as 
an  adjunct  to  the  water- works  for  the  purpose  of 
supplying  water  under  high  pressure  as  a  motive 
power  for  lifts  and  other  machinery,  we  are  dealing 
with  an  enterprise  which  has  all  the  characteristics 
of  a  trade.  ^ 

(12)  Gas. — The  use  of  gas  as  an  illuminant  was 
introduced  about  the  year  1800 ;  and  for  the  first 
half  of  the  nineteenth  century  the  supply  was  almost 
exclusively  in  the  hands  of  private  companies.  This 
industry  necessitates  the  laying  of  pipes  under  the 
streets ;  and  the  right  to  do  such  work  either  was 
granted  to  a  company  by  the  Local  Authority  under 
a  general  Act  of  Parliament,  or  was  acquired  by  a 
company  by  a  Private  Act  affecting  that  company 
only.  But  as  the  desire  for  municipal  enterprise 
increased,  more  and  more  of  these  private  gas 
companies  sold  their  rights  and  properties  voluntarily 

^M.T.R.,  Q.  2738. 


10 


HISTORICAL   SKETCH 


[chap.  I. 


or  involiintcarily  to  Municipal  Corporations,  who  there- 
upon undertook  the  management  of  these  works. 
The  number  of  Enghsh  private  gas-works  is,  however, 
even  now  nearly  double  the  number  of  the  municipal 
gas-works,  and  such  important  places  as  London, 
Liverpool,  Sheffield,  Bristol,  and  Hull  still  leave  their 
gas  supplies  in  private  hands. 

(13)  Certain  general  Acts  of  Parliament  confer 
on  all  I^ocal  Authorities  the  right  to  establish  gas- 
works, and  to  supply  gas  within  their  own  districts, 
provided  such  supplies  do  not  compete  with  private 
gas-works  trading  under  Private  Acts  of  Parliament. 
But,  as  a  fact,  few  undertakings  have  been  initiated 
in  this  way  by  Local  Authorities,  nearly  all  the 
existing  municipal  gas-works  having  been  fii-st  built 
by  private  traders,  and  subsequently  transferred  to 
public  hands.  Manchester  is  an  exception  to  this 
rule ;  for  in  1824  the  local  Police  Commissioners  set 
in  operation  the  first  publicly  managed  gas-works ; 
works  which  were  transferred  to  the  Manchester 
Corporation  by  Act  of  Parliament  in  1843.  The 
growth  of  municipal  enterprise  may,  perhaps,  be  best 
illustrated  by  reference  to  Local  Government  Board 
Returns  from  which  it  appears  that  the  numbers  of 
Municipal  Corporations  which  commenced  managing 
gas  undertakings  during  the  following  periods  were 
as  follows : — 


3 

1820-39 

5 

1840-49 

11 

1850-59 

14 

1860-69 

38 

1870-79 

12 

1880-89 

12 

1890-99 

The  falling  off  in  numbers  in  the  last  two  decades 


CHAP.  I.]  GAS-WORKS  11 

here  given  is  not,  I  think,  to  be  accounted  for  by  any 
diminution  of  the  desire  felt  by  Municipal  Authorities 
to  undertake  the  management  of  such  enterprises, 
but  rather  to  the  fact  that  the  gas-works  had  been 
municipalised  before  1880  in  most  of  the  towns  where 
the  desire  for  municipal  management  was  keenly  felt. 

(14)  As  regards  foreign  countries,  we  find  that 
in  Germany  a  larger  proportion  of  gas-works  are 
managed  by  municipalities  than  in  England,  the 
governments  of  51  out  of  the  54  cities  of  over 
50,000  inhabitants  'laving  undertaken  this  business. 
In  the  United  S tehees  there  are  only  14  cities  with 
municipal  gas-works  as  compared  with  951  private 
plants.  In  France  the  gas  supply  has  also  been 
largely  left  in  private  hands  ;  the  terms  on  which 
the  companies  have  been  allowed  to  trade  having, 
however,  received  the  most  careful  attention. 
Brussels  is  one  of  the  few  large  towns  in  Belgium 
or  France  which  have  a  municipal  gas  supply. 

(15)  English  municipalities  managing  gas-works 
have,  as  a  rule,  the  right  to  make  and  sell  all  residual 
products,  such  as  coke,  breeze,  tar,  ammoniacal 
liquor,  etc.,  and  to  sell  or  let  out  gas  fittings  and 
meters,  but  not  to  manufacture  them.  This  latter 
prohibition  is  a  recent  introduction  into  Parlia- 
mentary practice,  many  Local  Authorities  having 
acquired  the  right  to  manufacture  under  special  Acts 
passed  in  earlier  years,  or  in  consequence  of  the 
transference  to  them  without  restriction  of  the 
rights  and  powers  of  private  gas  companies.  Local 
Authorities,  it  is  said,  have  shown  "a  tendency  to 
"  ask  for  powers  to  manufacture  and  sell "  gas  fittings 
during  the  last  few  years. 

(16)  Electric    Lighting. — This    method    of  illu- 


12  HISTORICxVL   SKETCH  [chap.  i. 

mination  was  first  used  for  street  lighting  in  1880  in 
the  United  States,  and  by  1898  there  were  in  that 
country  2578  private  electric  lighting  plants  as 
compared  with  468  plants  managed  by  munici- 
palities. Even  this  contrast  does  not  correctly 
indicate  the  excess  of  private  over  municipal 
enterprise ;  for  municipal  works  are,  for  the  most 
part,  only  found  in  the  small  towns,  and,  in  many 
cases,  they  only  supply  electricity  for  street  lighting. 
Electric  industries  have  been,  in  fact,  developed  very 
rapidly  in  the  United  States ;  and  have  remained 
very  largely  in  private  hands.  Whether  these 
two  circumstances  have  any  connection  with  each 
other  will  be  considered  at  a  later  stage. 

(17)  "  On  the  continent  of  Europe  most  public 
"  electric  light  plants  in  Teutonic  countries  are 
"  municipal.  In  Germany,  however,  there  are  a 
"  number  of  important  exceptions  to  this  rule." 
Hamburg  owns  its  electric  hghting  works,  but 
leases  them  out  to  a  private  contractor.  "  In 
"  France,  Italy,  and  Belgium  municipal  electric 
"  plants  are  almost  unknown."  ^ 

(18)  Electrical  industries  have  been  far  less 
progressive  in  England  than  in  the  United  States. 
The  first  municipal  electric  lighting  works  were 
established  at  Bradford  in  1889  ;  and  by  1900  there 
were  130  municipal  works  as  compared  with  68 
works  in  private  hands,  tlie  municipal  being  on 
the  average  larger  than  the  private  undertakings, 
not  smaller,  as  in  the  United  States.  Newcastle, 
Norwich,  and  Preston  are,  I  believe,  the  only  towns 
with  more  than  100,000  inliabitants  which  have 
no     municipal     electrical     works.      Altliough     the 

'  "  Municipal  Administratiou,"  Fairlie,  p.  287. 


CHAP.  I]  ELECTRIC   LIGHTING  13 

Acts  of  Parliament  under  which  municipahties 
acquire  the  necessary  powers  are  called  Electric 
Lighting  Acts,  yet  there  is  nothing  in  them  to 
prevent  the  electricity  thus  made  from  being  used 
to  supply  motive  power  for  machinery ;  and  no 
doubt  it  will  be  thus  largely  used  in  future. 

(19)  Not  only  are  electrical  works  more  frequently 
managed  by  Local  Authorities  in  England  than 
elsewhere,  but  this  branch  of  Municipal  Trade  is 
almost  certain  to  increase  largely  in  the  future. 
To  make  this  point  clear,  it  is  necessary  to  refer 
briefly  to  the  terms  on  which  private  companies 
are  allowed  to  trade,  a  subject  which  will  be  dis- 
cussed at  greater  length  in  a  subsequent  chapter. 
When,  for  the  purposes  of  their  trade,  private  com- 
panies have  to  interfere  with  the  streets,  they  acquire 
the  necessary  rights  either  by  Private  Acts  of 
Parliament,  or  by  Provisional  Orders  granted  under 
the  provisions  of  General  Acts  of  Parliament,  or 
by  the  direct  consent  of  the  Local  Authorities 
concerned ;  and  such  rights,  however  granted,  may 
be  conveniently  included  under  the  one  general 
term  of  "  concession."  The  concessions  acquired 
by  water  and  gas  companies  in  England  have 
hitherto  been  granted  in  perpetuity ;  but,  in  the  case 
of  electric  and  tramway  companies,  the  concessions 
always  contain  provisions  under  which  the  JMunici- 
palities  concerned  retain  the  right  to  purchase 
the  undertakings  at  the  end  of  a  specified  period. 
This  period  of  years  may  conveniently  be  described 
as  the  concession  period.  Under  the  Electric 
Lighting  Act  of  1882,  the  concession  period  was 
only  twenty-one  years ;  and  any  company  which 
commenced  operations  under  that  Act  in  1885,  for 


14  HISTORICAL   SKETCH  [chap.  i. 

example,  would  have  found  itself  liable  to  be  com- 
pelled to  sell  all  its  works  and  rights  in  1906  to 
the  Local  Authority  of  the  area  supplied.  Private 
enterprise  did  not,  however,  flourish  under  this 
Act,  and  the  concession  period  was  increased  to 
forty-two  years  by  the  Electric  Lighting  Act  of 
1888.  This  change  did  not  meet  with  the  approval 
of  the  advocates  of  INlunicipal  Trade,  and  when  new 
concessions  were  being  granted,  I^ocal  Authorities 
desiring  to  undertake  this  branch  of  trade  have 
since  then  constantly  endeavoured  to  shorten  this 
concession  period  by  various  expedients.  But,  even 
if  no  success  should  attend  these  efforts,  it  is 
certain  that,  from  the  year  1930  onwards,  a  large 
number  of  municipalities  will  become  possessed 
of  the  right  of  purchase  of  private  electrical 
works  on  favourable  terms,  and  thus  of  commenc- 
ing this  branch  of  mimicipal  trading.  Municipal 
electrical  works  are  certain  to  increase  largely 
in  number  in  the  first  half  of  the  twentieth 
century  unless  a  great  change  takes  place  in  the 
popular  views  on  this  subject  in  England. 

(20)  Tramivays. — Tramways  were  first  adopted 
for  street  traffic  in  1852  in  the  United  States,  and 
this  method  of  locomotion  has  been  far  more 
developed  in  America  than  elsewhere.  The  credit 
for  the  introduction  in  1885  of  the  use  of  electricity 
as  a  motive  power  for  tramways  can  also  be  claimed 
by  a  city  in  that  country ;  and  after  1890  the 
abolition  of  horse  traction  for  tramways  was  rapidly 
effected  almost  everywhere  in  the  United  States. 
With  the  exception  of  a  line  over  Brooklyn 
^  Bridge,  about  a  mile  in  length,  and  of  certain 
recently     constructed      underground      railways     in 


CHAP.  I]  TRAMWAYS  15 

Boston    and    New     York,    all    this    has    been    the 
work   of  private   enterprise. 

(21)  As  regards  progress  in  electric  tramway 
development,  second  in  the  list  comes  Germany, 
a  country  where,  though  the  tracks  are  nearly 
always  owned  by  the  municipalities,  about  80 
per  cent,  of  the  systems  are  worked  by  private 
companies.^  In  1900  there  were  15,000  miles  of 
electric  tramways  in  operation  in  the  United  States 
and  1793  miles  in  Germany;  whilst  in  1899  the 
mileage  in  Great  Britain  was  only  210 ;  a  contrast 
which  is  instructive  when  it  is  remembered  that 
Great  Britain  leads  the  list,  and  that  Germany 
comes  second,  w^hen  these  countries  are  ranged 
in  order  according  to  the  amount  of  trade  they 
have  placed  in  municipal  hands.  By  1902  the 
mileage  of  electric  tramways  in  Great  Britain  had 
increased  to  870. 

(22)  In  the  earlier  EngUsh  Private  Acts  of 
Parliament,  passed  in  the  years  1868  and  1869, 
under  which  private  companies  obtained  powers 
to  open  tramways,  provisions  were  inserted  retain- 
ing the  right  for  the  municipalities  concerned  to 
purchase  the  undertakings  under  certain  conditions. 
Thus  the  principle  that  Local  Authorities  might 
at  all  events  otvn  tramways  was  fully  recognised  by 
Parliament  at  a  very  early  date.  The  only  general 
Tramway  Act  was  passed  in  1870,  and  still  remains 
in  force.  Under  its  provisions,  municipahties  are 
allowed  to  construct  and  oivn  tramways,  but  it 
includes  no  permission  for  Local  Authorities  to  work 
them.  A  number  of  tramways  were  in  conse- 
quence constructed  by  Local  Authorities  and  leased 

1  "  Traction  and  Transmission,"  Hon.  R.  P.  Porter,  August  1902,  p.  224. 


16  HISTORICAL   SKETCH  [chap.  i. 

out  by  them  to  private  companies  to  be  worked, 
a  rent  being  paid  into  the  municipal  treasuries. 
Mere  ownership  did  not,  however,  long  satisfy  the 
aspirations  of  English  municipalities.  In  the  year 
1882  the  Corporation  of  Huddersfield  obtained  a 
Private  Act,  which  enabled  the  Board  of  Trade 
to  permit  them  to  manage  their  tramway  system, 
if  they  should  find  themselves  unable  to  lease  it 
to  any  private  company  at  an  adequate  rent;  a 
permission  which  was  soon  granted.  In  1892 
Parliamentary  Standing  Orders  were  modified  in 
such  a  way  as  to  permit  Parliamentary  Committees 
to  insert  similar  provisions  into  any  private  Tram- 
way Bill ;  whilst  at  about  the  same  time  it  was 
claimed  that  certain  towns  had  been  granted  the 
power  to  work  tramways  by  the  earlier  Private 
Acts,  whether  Parliament  really  intended  to  do 
so  or  not.  In  these  and  other  ways  the  barriers 
against  the  municipal  working  of  tramways,  which 
had  some  influence  until  1892,  have  been  practically 
swept  away,  and  need  hardly  be  considered  to 
exist  any  longer. 

(23)  Under  the  Act  of  1870,  Local  Authorities 
acquired  the  right  to  purchase  the  property  of 
private  tramway  companies  twenty-one  years  after 
the  granting  of  a  concession  on  "  structural  value " 
terms.  JNIany  tramways  are  now  authorised  under 
the  Light  llailways  Act  of  1896 ;  but  in  these 
cases  also  the  right  of  purchase  is  reserved  to 
municipalities,  the  concession  period  being,  how- 
ever, not  limited  to  twenty-one  years  as  in  the 
Act  of  1870,  and  the  price  is  as  a  rule  to  depend 
on  the  market  value  as  a  going  concern.  At  the 
termination   of  these   concession  periods,   nearly   all 


CHAP.  I]  TRAMWAYS  17 

these  privately  constructed  tramways  will,  in  all 
probability,  be  bought  by  Local  Authorities,  who 
will  then  lease  them  out  for  working  to  private 
companies,  or  manage  them  themselves.  As  the 
latter  alternative  is  sure  to  be  adopted  in  many 
cases,  this  branch  of  Municipal  Trade  is  likely  to 
increase  largely  in  the  near  future.  In  1902  there 
were  885  miles  of  tramways  owned  by  the  muni- 
cipahties  of  the  United  Kingdom  out  of  a  total 
of  1483  miles. 

(24)  Powers  have  been  granted  by  various 
Private  Acts  in  recent  years  to  municipalities  to 
run  omnibuses ;  but  thus  far  this  permission  has 
been  strictly  limited  to  the  right  to  run  them  on 
certain  specified  routes  in  direct  connection  with 
existing  municipal  tramways.  It  may  well  be 
doubted  whether  this  limitation  will  continue  to 
be  inserted  in  all  future  Acts  dealing  with  municipal 
omnibuses. 

(25)  Municipal  House- Building. — Comparatively 
little  had  been  done  in  the  way  of  actual  building 
operations  by  municipalities  in  the  United  Kingdom 
before  the  year  1890,  when  the  Housing  of  the 
Working  Classes  Act  was  passed.  A  Lodging- 
Houses  Act  was  passed  in  1851,  which  gave  con- 
siderable powers  to  municipalities ;  but  it  remained 
almost  a  dead  letter.  Artizans'  and  Labourers' 
Dwelhngs  Acts  were  passed  in  1868,  1875,  1879, 
and  1882,  dealing  with  the  destruction  of  un- 
healtliy  buildings  and  other  matters ;  but  these 
led  to  little  reconstruction.  The  Housing  of  the 
Working  Classes  Act  of  1885  was  the  first  measure 
which  turned  the  attention  of  public  authorities 
to  the  demand  for  additional  dwellings  for  working 


18  HISTORICAL   SIvETCH  [chap.  i. 

men.  Some  action  was,  no  doubt,  taken  under 
these  earlier  Acts.  In  1853  the  Corporation  of 
Huddersfield  erected  a  model  lodging-house ;  in 
1865,  the  City  of  l^ondon  erected  dwellings  in 
connection  with  an  improvement  scheme ;  other 
important  towns  carried  out  improvement  schemes, 
involving  reconstruction,  under  various  Private  Acts. 
Glasgow,  between  1870  and  1879,  erected  several 
model  lodging-houses ;  and  in  1888  and  subsequent 
years  the  same  Corporation  built  a  number  of 
tenement  houses,  the  first  erected  being  merely 
designed  as  experimental  models.  It  is  only,  how- 
ever, since  1890  that  municipal  building  operations 
have  been  at  all  extensively  undertaken.  In  many 
instances,  the  blocks  owned  and  let  out  by  I^ocal 
Authorities  contain  shops.  At  the  present  time 
five  English  municipahties  have  regular  Works 
Departments  for  the  execution  of  various  under- 
takings, whilst  others  carry  out  constructional 
works  without  a  separate  department.^ 

(26)  In  order  to  give  some  indication  of  the 
extent  to  which  these  recent  operations  in  England 
may  fairly  be  classed  under  the  head  oi  Muni- 
cipal Trade,  something  must  be  said  as  to  the 
provisions  of  this  Act  of  1890.  It  is  divided 
into  three  parts.  Part  I.  deals  with  unhealthy 
areas  in  towns.  Part  II.  deals  chiefly  with 
separate  unhealthy  houses.  Under  the  provisions 
of  these  two  parts  a  Local  Authority  may,  and  in 
many  cases  must,  buy  up  insanitary  areas,  de- 
molish the  buildings  on  them,  let  out  the  cleared 
land  to  private  contractors  imder  stated  conditions 
as    to    the    rebuilding    of    dwellings    thereon,    and 

'  See  Jour,  of  the  Royal  Stats.  Soc,  June  1901,  F.  J.  Sykes, 


CHAP.  I]  HOUSING  ACTS  19 

finally  sell  to  private  owners  the  dwellings  thus 
erected.  This  may  prove  to  be  either  a  profitable 
or  an  unprofitable  transaction ;  but  it  can  hardly 
be  described  as  a  trading  operation.  If,  however, 
the  Local  Government  Board  gives  its  "  express 
"  approval,"  Local  Authorities  may  themselves 
undertake  the  rebuilding  of  the  houses  in  any 
way  they  Uke ;  and  they  may  also,  on  like  condi- 
ditions,  permanently  retain  in  their  own  hands 
all  dwellings  erected  by  themselves  or  by  private 
contractors  on  their  behalf.  Here  the  trading 
element  is  very  apparent.  In  fact  these  two  first 
parts  force  municipahties  to  clear  unhealthy  areas 
and  erect  houses  thereon,  but  only  enable  them 
by  permission  to  act  themselves  as  traders  in 
the  erection,  maintenance,  and  letting  of  these 
dwelhngs. 

(27)  Part  III.  of  this  Act  is  intended  to  en- 
able Local  Authorities  to  build  additional  houses 
for  the  working  classes  on  land  previously  not  built 
on.  Under  it  they  are  enabled  to  erect,  fit, 
furnish,  let,  and  manage  dwelling  and  lodging- 
houses  without  the  consent  of  the  Local  Govern- 
ment Board.  Here  there  is  no  compulsion,  and 
no  question  of  imhealthy  areas.  Here,  therefore, 
we  have  INIunicipal  Trade  pure  and  simple.  A 
large  paii:  of  the  expenditure  under  Parts  I.  and 
II.  of  this  Act  must  always  be  for  the  clearing  of 
unhealthy  areas  and  the  destruction  of  unhealthy 
buildings.  Bearing  this  in  mind,  the  following 
figures,  stated  in  round  numbers,  are  interesting 
as  showing,  it  may  be  hoped,  that  the  worst  slums 
have  been  cleared ;  and  also,  whether  a  matter  for 
congratulation   or    not,    that    the    trend    of   public 


20  HISTORICAL   SKETCH  [chap.  i. 

opinion    is    setting    strongly    in    the    direction    of 
Municipal  Trade. 

Loans  Sanction  by  the  Local  Government  Board. 


Under  Parts  I.  and  H. 

Under  Part  III. 

1892-95 

£425,000 

•       £46,000 

1896-99 

223,000 

.      411,000 

(28)  Outside  the  United  Kingdom  compara- 
tively little  has  been  attempted  in  the  way 
of  municipal  house-building.  INIunicipal  lodging- 
houses,  though  apparently  not  on  any  extensive 
scale,  exist  in  Paris  and  Berlin. 

(29)  Pawyishops  and  Insurance.  —  Although 
Municipal  Trade  has,  on  the  whole,  been  more 
developed  in  England  than  elsewhere,  yet  there 
are  a  few  enterprises  which  are  more  frequently 
managed  by  public  officials  abroad  than  with  us. 
Public  pawnshops  are  a  municipal  institution  in 
more  than  forty  of  the  chief  provincial  towns  of 
France,  and  are  commonly  found  in  Germany 
and  Belgium.  jMunicipal  savings  banks  are  even 
more  numerous  in  these  countries.  Municipal  fire 
insurance  is  also  a  German  institution,  and  has 
recently  been  adopted  in  Canada  and  AustraUa.^ 

(30)  Miscellaneous  Municipal  Enterprises. — The 
foregoing  are  the  principal  enterprises,  undertaken 
by  municipalities,  which  could  be  classed  as  trades. 
English  I^ocal  Authorities  may  also  provide  and 
maintain  cemeteries  and  allotments  of  garden  land ; 
and,  although  both  may  be  a  source  of  profit,  neither 
would  generally  be  regarded  as  commercial  under- 
takings. Various  other  enterprises  of  a  more  or 
less   commercial    character  are   managed    by   a   few 

1  "Lectures  on  the  Principles  of  Local  Government,"  Qomme,  p.  167. 


CHAP.  I.]        MISCELLANEOUS   ENTERPRISES  21 

municipalities,  the  necessary  powers  having,  in  some 
instances,  been  acquired  in  somewhat  abnormal  ways. 
The  residuum  from  dust  destructors,  with  other 
materials  added,  is  occasionally  made  by  munici- 
palities into  mortar  or  paving  stones,  which  are 
sold  to  the  public;  the  object  being  to  lessen 
the  cost  of  getting  rid  of  rubbish.^  The  Corpora- 
tion of  Glasgow  possesses  stone  quarries,  and 
builds  tram  cars.^  Power  has  been  granted  to 
certain  large  municipalities  to  issue  promissory 
notes,  the  object  being  to  enable  them  to  raise 
comparatively  small  sums  in  this  way.  This, 
however,  should  be  described  as  a  financial  ex- 
pedient rather  than  a  trading  operation.^  Milk 
is  distributed  by  one  or  two  Local  Authorities, 
the  intention  being  to  increase  the  use  of  steri- 
lised milk  and  thus  lessen  disease.*  Certain  muni- 
cipalities are  allowed  to  spend  definite  sums  in 
providing  free  bands  in  parks,  which  is  certainly 
not  a  commercial  venture.  But  when  powers  are 
taken  to  erect  buildings  for  entertainments,  to 
charge  entrance  money,  and  out  of  the  profits 
to  pay  for  bands,  the  trading  element  becomes 
apparent.^  Brighton,  Doncaster,  and  Pontefract 
own  racecourses ;  Brighton  and  Southborough  own 
theatres ;  and  Bournemouth  owns  golf  links.  ^ 
The  power  to  manufacture  electrical  fittings  has 
been  obtained  by  Sheffield ;  though  the  tendency 
of  Parliament  is  to  refuse  to  grant  such  rights. -^ 
The  most  important  municipal  enterprise  which 
has     been     commenced     in     recent     years     is     the 

1  M.T.R.,  Qa.  3180  and  4168.         *  Times,  30th  September  1902. 
»  M.T.R.,  Qs.  1058  and  3964.         "  M.T.R.,  Q.  3203. 
*  Ibid.,  Qs.  363,  647,  1015,  and  1939.    «  Ibid.,  Q.  355. 
7  Ibid.,  Qt.  434  and  2991. 


22  HISTORICAL   SKETCH  [chai.  i. 

establishment  of  telephone  services.  Glasgow  and 
Tunbridge  Wells  estabhshed  telephone  systems  in 
1901,  and  five  other  Corporations  had  by  1900 
obtained  the  necessary  licences  from  the  Post 
Office.  Tunbridge  Wells  has,  however,  recently 
abandoned  this  undertaking. 

(31)  Recent  Demands. — Certain  demands  recently 
made  by  municipalities,  even  though  they  have 
not  been  granted,  are  worth  noting  as  indicating 
the  growth  of  the  sentiment  in  favour  of  municipal 
enterprise.  The  following  powers  have  been  in- 
cluded in  bills  or  draft  Provisional  Orders,  sub- 
mitted either  to  Parliament  or  to  the  Government 
departments  concerned :  —  To  buy  land  and  make 
a  cycle  track  thereon ;  to  construct  dynamo 
electric  machines,  other  electric  apparatus,  and 
steam-engines ;  to  provide  apparatus  for  games, 
and  to  charge  for  the  use  thereof;  to  run  omni- 
buses in  connection  with  tramways ;  to  establish 
a  river  steamboat  service ;  to  provide  bathing- 
machines  ;  to  advertise  the  facilities  and 
advantages  of  the  district  for  trading  and 
commercial  purposes ;  to  supply  sea-water ;  to 
establish  Fire  and  Accident  Insurance  Funds ; 
to  construct  bazaars,  aquaria,  concert-rooms, 
kiosks,  saloons,  shops,  winter-gardens,  etc.;  to 
erect,  maintain,  furnish,  and  equip  common 
lodging-houses ;  to  manufacture  electric  fittings ; 
to  acquire  patent  rights.  These,  and  the  manage- 
ment of  public-houses,  are  some  of  the  enterprises 
necessarily  involving  some  risk  to  the  ratepayers, 
which  Local  Authorities  have  recently  wished  to 
undertake.^ 

1  M.T.R.,  1900,  pp.  462,  511. 


CHAP.  I.] 


REVENUES 


(32)  Municipal  Revenues. — In  England  the 
incomes  of  Local  Authorities  are  derived  partly 
from  rates  and  partly  from  other  sources.  The 
way  in  which  the  rates  have  increased  during 
the  nineteenth  century  may  be  seen  from  the 
following  figures,  which  give  in  round  numbers 
the  sums  received  in  England  and  Wales  during 
the  years  named  from  this  source  of  revenue : — 


1803   . 

£5,348,000 

1827   . 

9,544,000 

1851   . 

8,916,000 

1868   . 

16,800,000 

1898   . 

37,605,000 

The  total  aggregate  revenue,  including  these 
rates,  received  by  these  Local  Authorities  in  1898, 
the  last  year  given  in  this  list,  was  £69,144,000 ; 
the  balance  being  made  up  by  Treasury  sub- 
ventions, fines,  income  from  invested  property, 
sales  of  property,  and  profits  from  municipal 
trading  enterprises,  the  latter  sum  being  returned 
at  about  £11,750,000.  Thus  the  increase  in  local 
taxation  has  been  extremely  rapid  since  the  middle 
of  the  century,  far  more  rapid  than  the  increase 
in  the  population.  But  the  facts  as  above  stated 
merely  prove  that  Local  Authorities  have  become 
far  more  active  in  recent  years,  and  have  shown 
themselves  more  and  more  ready  to  undertake 
new  responsibilities.  Taken  by  itself,  the  fore- 
going statement  gives  no  indication  whatever 
as  to  whether  rates  would  on  the  average  have 
been  higher  or  lower  had  no  municipal  trading 
enterprises  been  undertaken. 

(33)  The  financial  effect  of  these  remunerative 
undertakings     becomes,     however,     very     apparent 


M  HISTORICAL  SKETCH  [chap.  i. 

when  we  study  the  statistics  of  municipal  in- 
debtedness. The  amount  of  the  debts  incurred 
by  EngHsh  and  Welsh  Local  Authorities  at  the 
following  dates  was  approximately  as  follows : — 

1867-68  .  .  .  £60,000,000 

1874-75  .  .  .  93,000,000 

1899-1900        .  .  .  294,000,000 

Between  the  years  1874-75  and  1898-99,  whilst 
the  national  debt  was  7^educed  by  £141,000,000 
the  local  debt  in  England  a^id  Wales  only  was 
increased  by  £185,000,000;^  and,  "while  the  total 
"  increase  in  the  rateable  value  of  the  country  in 
"  the  last  twenty-five  years  has  been  less  than  30 
"  per  cent.,  its  local  debt  has  trebled."  Until  we 
can  define  exactly  what  a  municipal  trade  is,  we 
cannot  say  how  much  of  this  increase  of  indebted- 
ness has  been  due  to  municipal  trading.  But, 
without  resorting  to  definitions,  it  may  be  stated 
that  the  total  amount  of  the  outstanding  loans 
of  the  same  Local  Authorities  for  markets, 
slaughter-houses,  cemeteries,  harbours,  piers,  quays, 
water-works,  gas-works,  electric  lighting,  and  tram- 
ways was  as  follows  : — 

1885  .  .  .  £81,234,000 

1898  .  .  .  116,006,000 

This  is  an  increase  of  42  per  cent,  in  13  years.^ 
There  is,  of  course,  an  increase  in  the  assets  belong- 
ing to  Local  Authorities  corresponding  to  this 
increase  in  the  debts  incurred  by  them  for  these 
remunerative   undertakings ;    for   the   money    raised 

^  Jour,  of  the  Royal  Stats.  Soc,  Sept.  1900.  Sir  H.  H.  Fowler,  pp. 
383-385  ;  Report  on  Select  Committee  on  Repayment  of  Loans,  1902, 
p.  262;  Times,  28th  August  1902. 

2  M.T.R.,  Qs.  952,  953. 


CHAP.  I.] 


MUNICIPAL   DEBTS 


25 


has  been  mainly  expended  in  the  purchase  of  land 
and  in  the  erection  of  valuable  plant.  It  has  also 
to  be  noted  that  all  these  debts  are  being  paid  off 
year  by  year  by  sinking  funds.  But  it  can  hardly 
be  denied  that  the  increase  of  local  indebtedness 
has  not  only  been  starthngly  rapid,  but  that  it 
has  been  progressing  at  an  accelerating  ratio. 

(34)  With  regard  to  the  financial  condition  of 
municipalities  in  other  countries,  the  following 
table  is  interesting.  It  confirms  the  view  already 
expressed  that  in  no  important  country  has 
municipal  enterprise  been  so  progressive  as  it  has 
been  in  England,  i 

Statistics  of  Municipal  Debts. 


Country. 

Year 

Debt  per  Capita 

England  and  Wales 

1898      . 

.£880 

United  States 

1890     . 

2     9     0 

France 

1899     . 

3  14     0 

Italy 

1889     . 

1     9     0 

Belgium 

1880     . 

">1\7^        linlrlc 

4     4     0 

"  relative  position  as  the  United  States." 

(35)  To  summarise  the  foregoing  sketch,  we 
see  that  markets,  baths,  harbours,  and  water- 
works have  been  managed  for  many  years  by 
local  bodies.  Municipal  gas-works  existed,  though 
not  in  great  numbers,  before  the  year  1875. 
Ten  years  later  came  municipal  electric  lighting 
works  and  municipal  tramways ;  and  last  in  the 
list  of  important  enterprises  came  municipal  house- 
building, which  has  been  undertaken  by  several 
municipalities   on   a    considerable    scale    during  the 

1  "  Municipal  Administration,"  Fairlie,  p.  331. 


26  HISTORICAL   SKETCH  [chap.  i. 

last  fifteen  years  or  so.  Contemporaneously  with 
this  increase  during  the  last  half  of  the  nine- 
teenth century  in  the  number  of  different  kinds 
of  industries  commonly  municipalised,  the  actual 
number  of  municijyal  works  of  all  the  different 
kinds  continually  increased  also.  This  progressive 
municipal  spirit  has  also  shown  itself  recently  in 
the  desire  expressed  by  many  Local  Authorities 
to  undertake  various  competitive  industries,  a 
desire  which  has  not  generally  met  with  a 
favourable  reception  in  Parliament.  Thus  not 
only  is  this  municipal  movement  in  reality  a 
very  recent  one,  but  we  can,  moreover,  learn  little 
from  the  experience  of  other  countries ;  for  no- 
where else  has  JMunicipal  Trade  been  so  extensively 
developed  as  in  England. 

(36)  A  trade  may  perhaps  be  described  as  an 
enterprise  undertaken  for  the  sake  of  making  a 
profit,  and  necessarily  involving  some  risk  of  loss  to 
the  proprietors.  As  to  the  undertakings  commonly 
managed  by  municipalities,  which  have  been  dis- 
cussed in  the  chronological  order  of  their  fii'st 
adoption  as  municipal  enterprises,  it  will  be  observed 
that,  in  those  more  recently  taken  in  hand,  the 
characteristics  of  a  trade  are  more  clearly  discernible. 
At  the  beginning  of  the  nineteenth  century  it  was 
in  fact  actually  illegal  for  a  Corporation  to  make  a 
profit  as  a  trader ;  whereas  at  the  present  time 
municipalities  are  becoming  more  and  more  desirous 
either  of  making  a  profit  in  this  way,  or  of  managing 
industrial  concerns  with  some  other  public  object 
in  view.  They  are  showing  less  and  less  unwilling- 
ness to  face  the  risks  involved  in  trading  enterprises, 
and  the  rapid  increase  of  local  indebtedness  appears 


CHAP.  I.]  HISTORICAL   SKETCH  27 

thus  far  to  have  placed  no  check  on  their  aspirations. 
Unless  it  can  be  demonstrated  that  this  is  a  move- 
ment in  the  right  direction,  these  facts  must  afford 
grounds  for  grave  apprehension.  The  laissez-faire 
theory  of  Government  received  a  severe  blow  when 
the  regulation  of  railways  and  factories  by  the  State 
was  undertaken  and  was  found  to  have  beneficial 
effects ;  and  less  and  less  attention  has  been  paid 
in  recent  years  to  the  arguments  in  its  favour. 
It  is  high  time  to  consider  the  whole  question 
anew,  and  to  decide  whether  our  towns  should  be 
encouraged  to  press  further  forward  in  their  present 
path  of  progress,  or  whether  the  pendulum  has  not 
already  swung  somewhat  too  far  in  this  reaction 
against  individualism.  Such  an  enquiry  would 
open  out  a  wide  field  for  debate,  and  all  that  will 
here  be  attempted  will  be  to  ascertain  when  it 
would  be  wise  and  when  it  would  not  be  mse  for 
municipalities  to  manage  enterprises  with  any 
affinity  to  trades,  whatever  might  be  their  objects 
in  so  doing. 


11 

MUNICIPAL   TRADE   AND    SOCIALISM 

(1)  Socialism  and  the  desire  for  Municipal  Trade 
are  undoubtedly  products  of  the  same  great  political 
and  social  forces ;  the  result,  that  is,  of  the  increased 
power  of  the  mass  of  the  people,  and  of  the  great 
extension  of  the  facilities  for  intercommunication 
of  all  kinds.  Socialistic  politicians  are  always  keen 
advocates  of  Municipal  Trade,  and  are  naturally 
prepared  to  go  to  any  length  in  this  direction.^  Some 
hope,  as  regards  all  trades,  to  be  able  to  organise 
them  "  on  a  public  basis,  one  branch  after  another, 
"  transforming  them  into  collective  capital  and 
"  socialised  labour."  ^  Others  desire  municipal  enter- 
prise more  on  account  of  its  indirect  effects.  By 
paying  municipal  workmen  better  than  their  fellows 
in  private  employment,  they  hope  to  spread  the 
belief — a  belief  they  themselves  probably  honestly 
hold — that  better  conditions  necessarily  accompany 
State  employment.  It  being  further  their  intention 
to  obtain,  if  possible,  the  control  of  the  administra- 
tion of  our  great  cities,  they  not  unreasonably  argue 
that  the  greater  the  number  of  voters  in  the  pay 
of  the  captured  municipalities,  the  greater  will  be 
their  chances  of  success   in  any  struggle  in  favour 

^  For  examples  of  the  lengths  to  which  some  towns  are  prepared  to  go, 
see  Journal  dcS  Economistes,  15  Juilld  1901,  "  Lc  ]\Innicipalism,"  H.  Bouet. 
2  "  Quintessence  of  Socialism,"  A.  E.  F.  Schaffle,  1889,  p.  48. 

28 


CHAP.  II.]  SOCIALISM  29 

of  a  more  advanced  socialistic  system.  Thus  the 
advocates  of  Municipal  Trade  undoubtedly  find 
themselves  to  this  extent  in  alliance  with  socialistic 
politicians  of  an  extreme  type. 

(2)  This  volume  is  not,  however,  addressed  to 
socialists.  If  an  attempt  were  to  be  made  to  prove 
to  the  extremists  that  their  views  are  erroneous, 
it  would  be  necessary  to  discuss  the  whole  subject 
of  Socialism  from  its  foundations.  Socialists 
demand  reforms  on  the  ground  of  right  rather 
than  on  the  ground  of  expediency ;  and  to  prove 
that  the  municipalisation  of  any  particular  industry, 
taken  as  a  measure  by  itself,  would  be  inexpedient, 
would  not  shake  their  faith  in  Socialism  as  a 
whole.  The  two  movements,  moreover,  differ 
widely  enough  to  make  it  possible  to  discuss  the 
one  without  considering  the  other.  Advanced 
socialists  deny  the  right  of  individuals  to  hold 
private  property  of  any  kind,  and  the  impossibility 
of  effecting  the  reforms  they  desire  by  constitutional 
means  is  by  many  of  them  hardly  denied.  On  the 
other  hand,  the  advocates  of  INIunicipal  Trade  may 
be  strong  upholders  of  the  right  of  holding  private 
property ;  they  may  be  sound  constitutionalists ; 
and  they  may  only  desire  to  see  a  trade  muni- 
cipalised owing  to  their  conviction  that  this  step 
would  be  beneficial  to  the  community  at  large. 
It  is,  I  believe,  to  citizens  holding  these  opinions 
that  the  municipal  movement  in  England  at  present 
owes  its  chief  strength.  No  doubt,  the  Social 
Democratic  Federation,  the  Independent  Labour 
Party,  and  the  Fabian  Society  are  engaged  in 
an  active  propaganda  of  jNIunicipal  Trade  as  a 
stepping  stone  to   more  extreme  measures.      These 


30      MUNICIPAL  TRADE   AND   SOCIALISM      [chap.  ii. 

associations  have  certainly  acquired  great  influence 
in  some  localities,  and  it  would  be  very  unwise 
to  attempt  to  foretell  the  future  of  Socialism 
in  England/  But  for  tlie  immediate  future  it 
appears  to  me  that  the  decision  on  all  questions 
affecting  Municipal  Trade  in  the  great  majority  of 
localities  in  England  still  rests  with  men  of  more 
moderate  opinions.  In  any  case,  it  is  to  citizens 
who  are  willing  to  regard  municipal  questions 
without  fixed  ideas  on  socialistic  rights  that  the 
arguments  here  used  are  addressed. 

(3)  It  is,  however,  necessary  to  examine  one 
question  connected  with  this  subject.  Probably 
the  sentiment  which  tells  most  strongly  in  favour 
of  ^lunicipal  Trade  in  the  minds  of  English  work- 
ing men  is  the  belief  that  municipal  employees 
receive  better  treatment  than  similar  employees 
in  private  trade.  It  is,  I  believe,  easy  to  prove 
that  municipal  w^orkmen  do,  on  the  average,  receive 
a  higher  rate  of  pay  for  a  given  amount  of  work  ; 
and  the  question  here  to  be  considered  is  whether 
this  fact  does  or  does  not  aflbrd  a  legitimate 
reason  in  favour  of  Municipal  Trade. ^ 

(4)  Municipalities  undertaking  trading  operations 
must  get  their  work  done  either  by  the  direct 
employment  of  labour,  or  by  employing  contractors. 
Taking  the  latter  alternative  fii'st,  it  is  to  be  noted 
that  many  municipalities,  the  London  County 
Council  included,  always  insert  a  "  fair  wages  "  clause 
in  their  contracts,  thus  obliging  contractors  to 
undertake  to  pay  their  workmen  either  the  wages 
"  generally   accepted   as   fair   in    the   trade "  or   the 

1  Socialism  in  West  Ham,  for  example.    See  Times,  16tli  September  1902. 

2  See  chap,  vi.,  par.  20. 


CHAP.  II.]  FAIR   WAGES  31 

"trade  union  rate  of  wages."  This  is  the  only  way 
in  which  a  workman,  paid  by  a  private  contractor, 
will  be  affected  by  the  fact  that  the  work  is  being 
done  for  a  municipality ;  and  the  beneficial  result 
to  him  is  held  to  be  one  of  the  advantages  of  the 
work  being  in  the  hands  of  a  JVIunicipality,  or  one 
of  the  merits  of  ^lunicipal  Trade.  It  can  hardly 
be  doubted  that  the  penalties  necessary  to  enforce 
the  payment  of  "  fair  wages,"  and  the  necessary 
right  of  inspection  of  contractors  books,  has  a 
tendency  to  make  contractors  raise  their  tenders, 
and  to  prevent  some  firms  from  tendering ;  and 
this  in  turn  must  inevitably  raise  the  average 
price  paid  for  the  work  done.  But  there  may  be 
some  doubt  as  to  how  much  of  this  increase  of 
cost  finds  its  way  into  the  workmen's  pockets. 
In  cases  where  this  clause  has  no  effect  at  all  on 
wages,  it  is  obvious  that  it  cannot  be  advantageous 
even  to  the  workman.  But  undoubtedly  in  some 
cases,  few  or  many,  it  has  an  effect ;  or,  in  other 
words,  contractors  are  sometimes  induced  to  pay 
a  higher  rate  of  wages  than  they  would  pay 
if  no  such  clause  were  inserted.  The  question 
then  is  whether  it  is,  on  the  whole,  advan- 
tageous that  workmen  should  have  their  wages 
thus  artificially  raised  when  the  work  they  are 
employed  on  is  to  be  paid  for  by  the  public.  Is 
it  possible  to  suggest  any  argument  with  reference 
to  the  insertion  of  fair  wages  clauses  which  would 
not  apply  with  equal  force  to  all  contracts,  whoever 
might  be  the  paymaster  for  the  work  done  ?  Why 
should  a  workman  who  is  building  a  tramway  car  for 
a  contractor  receive  a  higher  rate  of  wages  because 
the   car  he  is  building  will  eventually  be  run  on  a 


32      MUNICIPAL  TRADE   AND   SOCIALISM      [chap.  ii. 

municipal  tramway  and  not  on  a  tramway  owned 
by  a  private  company  ?  If  an  artificial  increase 
of  wages  is  right  in  the  one  case,  it  is  right  in  the 
other.  The  true  question  at  issue  has  no  relation 
to  the  advantages  or  disadvantages  of  JNIunicipal 
Trade :  for  that  which  ought  to  be  decided  is 
whether  it  would  be  wise  for  the  State  to  insist 
on  fair  wages  clauses  being  inserted  in  all  contracts. 
jNIy  own  view  most  decidedly  is  that  it  would  not 
be  wise,  because  amongst  other  results  it  would 
give  Trades  Unions  an  undesirable  influence  over 
all  traders,  public  and  private.  If,  however,  this 
view  is  erroneous,  and  fair  wages  clauses  ought  to 
be  inserted  in  contracts  for  public  works,  the  reform 
to  be  aimed  at  is  the  enactment  by  Parliament 
that  fair  wages  clauses  should  be  inserted  in  all 
contracts;  an  enactment  which,  if  passed,  would 
give  to  workmen  on  private  undertakings  the  same 
advantages  as  men  working  under  contractors  for 
public  bodies,  and  would  thus  destroy  this  alleged 
advantage  of  municipal  over  private  trade. 

(5)  With  regard  to  the  direct  employment  of 
labour  by  municipalities,  two  distinct  advantages 
arising  from  it  are  claimed  as  arguments  in  favour 
of  Municipal  Trade.  In  the  first  place,  it  is  claimed 
that  workmen  get  better  terms,  and  work  under  better 
conditions,  when  employed  directly  on  municipal 
works  than  they  would  do  if  they  were  in  private 
employment ;  and  that  a  large  class  is  thus  benefited 
by  INIunicipal  Trade.  JNIunicipal  workmen  when 
directly  employed  on  public  works  do,  I  have  no 
doubt,  get  better  pay  on  the  average  for  the  amount 
of  work  done  than  workmen  in  private  employ- 
ment, even  when  the  conditions  are  exactly  similar ; 


CHAP,  ii]  DIRECT  EMPLOYMENT  33 

that  is,  for  example,  comparing  the  employees  in 
municipal  gas  -  works  with  similar  employees  in 
private  gas-works.  The  lot  of  the  directly  employed 
municipal  workman  is,  moreover,  probably  often  in 
other  respects  preferable  to  that  of  the  workman 
employed  at  the  same  work  by  a  contractor ; 
because,  taking  sewage-works  as  an  example,  when 
the  work  is  being  done  by  a  municipality  direct, 
the  municipal  foreman  of  works  will  be  less  likely 
than  the  contractor  to  "  sweat "  his  men,  or  to 
get  out  of  them  an  unduly  heavy  day's  Avork  for 
their  day's  wage.  The  second  advantage  claimed 
for  INlunicipal  Trade  is  that  workmen  in  private 
employment  will  be  beneficially  affected  by  the 
good  example  which  municipalities,  by  becoming 
managers  of  industrial  concerns,  will  be  enabled  to 
set  to  private  employers  in  respect  of  the  hours 
of  labour,  the  rates  of  wages,  and  the  conditions 
of  employment.  Thus  INIunicipal  Trade,  so  it  is 
urged,  will  result  in  benefits  being  experienced  by 
all  workmen  employed  directly  by  Local  Authorities, 
and  it  will  also  indirectly  benefit  other  workmen  on 
account  of  the  good  example  set  to  private  employers 
of  labour. 

(6)  With  regard  to  both  these  claims,  it  is 
necessary  to  draw  a  distinction  between  reforms 
which  will  affect  the  price  of  the  commodity  pro- 
duced, or  the  cost  of  the  work  done,  and  reforms 
which  will  have  no  such  effect.  Taking  the  latter 
alternative  first,  the  opportunities  for  municipalities, 
when  employing  men  directly,  either  to  take  pre- 
cautions or  to  adopt  regulations  unusual  in  private 
trade  which  would  beneficially  affect  their  employees 
without  involving  material  expenditure  are,  I  suspect, 

c 


34      MUNICIPAL   TRADE   AND   SOCIALISM      [chap.  ii. 

rarely  to  be  met  with.     In  times  gone  by  many  things 
might  have  been  done  vokmtarily  by  employers,  such, 
for   example,  as  the  use   of  safety-lamps  in  mines, 
which  would  at  little  or  no  cost  have  lessened  the 
danger   attendant   on   certain    industries ;   and   cases 
probably  still  exists  where  inexpensive  beneficial  action 
is   possible.      But   with   regard  to   all   matters   con- 
nected with  health,  morals,  and  safety,  and  as  regards 
many  matters  connected  with   mere  convenience,  if 
the   beneficial   effect   of  any  reform   can   be  clearly 
demonstrated,  and  if  it  does  not  involve  any  capital 
outlay  or  increased  cost  of  production,  why  should 
not  Parliament  enforce  its  adoption  by  all  employers, 
public  or  private?     A  reform  can  be  introduced  by 
legislation    with    far    more    certainty   than    by   the 
mere    voluntary    action     or     example    of    separate 
municipalities.      If    all    the    reforms     which    ought 
in   any   case    to    be    compulsorily    enforced    on    all 
employers    are     left     out    of    consideration,    there 
remains,  in  fact,  but  a  very  limited  field  in  which 
it    is    possible    for    municipahties    to    benefit    their 
employees,    or    to    set    a    good    example   to   other 
employers,    without    adding    to    the    cost    of    the 
work   done ;    and,   even    if,   as    is    probable.   Local 
Authorities  are  more  ready  than  private  employers 
to    concern    themselves   with    the   welfare   of    their 
employees,    but    a    very    feeble    argument    can    be 
founded     on     these     considerations     in     favour     of 
Municipal  Trade. 

(7)  The  foregoing  argument  is  not,  however, 
applicable  to  the  many  ways  in  which  a  workman 
can  be  benefited  by  methods  involving  an  increased 
expenditure  on  the  part  of  his  paymaster;  such  as 
higher  wages,  shorter  hours,  lighter  work,  or  better 


CHAP.  II.]  BETTER   WAGES  S5 

workshops.  Some  advocates  of  Municipal  Trade 
claim  the  better  treatment  of  municipal  employees 
as  a  merit  of  the  system  they  are  upholding, 
whilst  at  the  same  time  they  attempt  to  prove 
that  municipal  enterprise  is  no  more  costly  than 
private  trade.  But,  as  regards  the  matters  now 
under  consideration,  does  it  not  follow  that,  if  one 
of  these  contentions  is  true,  the  other  must  be 
erroneous  ?  If  municipalities  pay  their  men  no 
better  than  private  employers,  how  can  munici- 
palities set  a  good  example  to  private  employers 
in  this  respect?  On  the  other  hand,  if  the  pay 
of  the  municipal  workman  is  higher  than  the  pay 
of  the  private  workman,  must  not  the  cost  of 
production  be  higher  in  municipal  enterprise  than 
in  private  enterprise  ?  Attempts  have  no  doubt 
been  made  in  one  or  two  ways  to  escape  from  the 
horns  of  this  dilemma ;  but,  as  we  shall  see,  they 
all  fail  more  or  less  completely. 

(8)  In  the  first  place,  as  regards  the  direct 
employment  of  labour  by  a  municipality  in  place 
of  getting  the  work  done  by  private  contract,  it  is 
claimed  that  the  profits  of  the  contractor  are  thus 
saved,  and  that,  consequently,  no  increase  of  total 
cost  need  be  involved  by  the  payment  to  the 
municipal  employees  of  a  higher  rate  of  wages  than 
that  received  by  the  workmen  employed  by  the 
contractor.  It  can,  however,  hardly  be  doubted  that 
the  contractor,  being  personally  interested,  is,  as 
a  rule,  more  successful  than  the  municipal  foreman 
of  works  in  making  workmen  do  a  good  day's  work, 
and  that,  for  this  and  for  other  reasons  which  will 
be  discussed  in  the  chapter  on  "Management,"  the 
cost  of  the  work  is  as  a  rule  considerably  increased 


36      MUNICIPAL   TRADE   AND   SOCIALISM      [chap.  ii. 

by  the  direct  employment  of  labour,  even  if  no 
increase  be  made  in  the  rate  of  wages.  But  even 
in  the  cases  where  the  contractors'  profits  could  be 
saved  with  advantage,  ought  they  to  be,  as  it  were, 
distributed  amongst  the  municipal  employees?  In 
such  works  as  underground  sewers,  where  inspection 
is  difficult,  and  where  much  must  be  left  to  the  good 
faith  of  the  employees,  it  is  suggested  that  the 
employment  of  a  contractor  leads  to  bad  work,  and 
that  the  work  would  be  better  done  by  the  direct  em- 
ployment of  workmen  receiving  higher  pay.  Where- 
ever  it  can  be  proved  that  this  is  the  case,  the  system 
of  direct  employment  by  the  municipahty  should, 
as  far  as  this  consideration  is  concerned,  certainly 
be  adopted.  But,  if  so  adopted,  it  would  be  adopted 
because  it  produced  better  work,  and  not  because  it 
resulted  in  a  certain  number  of  workmen  receiving 
a  higher  rate  of  pay.  If,  on  the  other  hand,  the 
quality  of  the  work  would  not  be  proportionately 
increased  by  an  increase  of  wages,  and  if  other  things 
remained  the  same,  it  is  obvious  that  the  direct 
employment  of  labour  at  the  ordinary  rate  of  wages 
would  result  in  a  reduction  in  the  cost  of  production 
if  the  contractor's  profits  can  thus  be  saved.  Taking 
the  case  of  the  construction  of  sewers  by  direct 
employment  again  as  an  example,  the  question  at 
issue  is  whether  the  fund  raised  should  be  only 
sufficient  to  enable  the  workmen  to  be  paid  at  the 
market  rate  of  wages  ;  or  whether  the  same  fund 
should  be  raised  as  would  be  necessary  if  a  con- 
tractor had  to  be  paid,  the  workmen's  wages  being, 
at  the  same  time,  raised  above  the  market  level, 
and  the  cost  of  construction  increased  up  to  the 
contract  level.      Whether  it  is  right  thus  to  raise 


CHAP.  II.]  CONTRACTORS'   PROFITS  37 

the  wage  of  the  municipal  employee  has  not  yet 
been  discussed ;  but  it  certainly  cannot  be  right  to 
do  so  only  in  those  cases  where  the  employment  of 
a  contractor  would  add  to  the  cost.  An  attempt 
is  here  being  made,  in  fact,  to  connect  two  con- 
siderations which  should  be  kept  quite  separate. 
The  Sociahst  may,  no  doubt,  hold  that  it  would 
be  economical  to  place  all  production  in  the  hands 
of  the  direct  employees  of  public  bodies,  and  he  may 
advocate  JNIunicipal  Trade  as  a  step  in  the  right 
direction.  But  he  cannot  beheve  that  the  credit 
of  the  introduction  of  INIunicipal  Trade  is  in  any  way 
due  to  the  existing  municipal  workmen,  or  that 
there  is  any  reason  why  they  alone  should  benefit 
by  the  economies  he  believes  to  have  been  already 
effected.  Even  the  convinced  Socialist  can  only 
defend  the  higher  pay  of  municipal  workmen  on  the 
ground  that  an  excellent  object-lesson  is  thus  given 
to  all  who  are  unconvinced.  Thus  the  abolition  of 
the  contractor  is  very  seldom  economical ;  and, 
when  it  is  so,  it  affords  no  real  reason  for  paying 
municipal  workmen  above  the  private  rate  of  wages. 
(9)  Much  the  same  answer  may  be  made  to 
the  claim  that  municipalities  can  borrow  money  at 
a  lower  rate  of  interest  than  private  traders,  and 
that  it  is  consequently  possible  for  them  to  pay  a 
higher  rate  of  wages  and  yet  do  the  v/ork  at  the 
same  cost.  The  financial  questions  connected  with 
jNIunicipal  Trade  will  be  examined  in  a  subsequent 
chapter,  when  it  will  be  seen,  in  the  first  place, 
that  the  main  reason  why  municipalities  can  raise 
money  more  cheaply  than  private  traders  is  because 
the  conditions  attached  to  the  loans  are  different 
in  the  two  cases,  and,  in  the  second  place,  that  the 


:39342 


38      MUNICIPAL  TRADE   AND   SOCIALISM      [chap.  ii. 

economy  claimed  on  this  ground  is  very  proble- 
matical. But,  whether  it  is  problematical  or  not, 
workmen's  wages  should  not  depend  on  such  ex- 
traneous circumstances  as  the  conditions  attached 
to  municipal  loans.  Even  if  it  be  possible  to 
reduce  the  cost  of  production  by  raising  money 
in  a  particular  manner,  this  in  itself  affords  no 
reason  for  increasing  the  pay  of  the  municipal 
employees.  The  one  circumstance  has  nothing 
whatever  to  do  with  the  other.  If  the  pay  is 
increased,  must  it  not  make  the  work  more  ex- 
pensive than  if  it  were  not  so  increased  ?  And, 
if  this  is  the  case,  can  it  be  right  thus  to  increase 
the  pay  ?  These  are  the  questions  which  have  to 
be  considered. 

(10)  It  is,  in  the  second  place,  denied  that  work 
would  become  more  costly  if  wages  were  increased, 
it  being  asserted  that  the  better  the  workman  is 
treated,  the  more  efficient  as  an  agent  of  production 
does  he  become.  Here  there  are  two  questions 
involved.  It  may  be  urged  either  that  it  is  more 
economical  to  employ  a  smaller  number  of  more 
highly  paid  men,  or  that  it  is  more  economical 
to  pay  all  labour  at  a  higher  rate.  The  first  of 
these  alternatives,  or  the  employment  of  fewer  but 
more  highly  skilled  men,  would  have  the  immediate 
effect  of  reducing'  the  ordinary  market  rate  of 
wages  by  adding  to  the  number  of  the  unemployed ; 
and  even  if  in  the  end  the  net  result  would  be 
beneficial  to  the  community  at  large,  a  reduction  in 
the  numbers  employed  would  in  no  circumstances  be 
claimed  by  Sociahsts  as  being  advantageous.  As 
to  increasing  the  wages  of  all  labour,  it  is  absurd 
to  suppose  that  such  an  increase  would  always   be 


cHAi  II.]  WAGES  AND  PRODUCTION  39 

accompanied  by  a  proportionate  increase  of  produc- 
tive power,  whatever  might  be  the  level  of  existing 
wages.  The  effect  of  a  change  in  the  rate  of  pay- 
ment must  vary  with  every  condition  connected  with 
the  employment.  It  is  difficult  to  foretell  the  effect 
at  any  particular  time,  and  in  any  particular  trade, 
of  an  increase  in  the  rate  of  wages ;  and  it  is  even 
more  difficult  to  foretell  the  effect  on  the  cost  of 
production  of  any  general  rise  in  wages.  All  we 
can  do  wdth  regard  to  such  questions  is  to  rely 
on  the  opinions  of  those  most  capable  of  judging. 
If  it  were  true  that  a  general  rise  of  wages  at  the 
present  time  would  increase  production,  it  would 
follow  that  private  manufacturers  would  be  benefited 
by  making  such  an  increase ;  for  by  so  doing  they 
would  increase  their  profits.  There  are  many  strong 
inducements  to  make  an  employer  treat  his 
employees  well.  His  natural  good  feelings,  his 
desire  to  obtain  the  best  hands  in  the  market,  and 
his  dread  of  labour  troubles,  all  make  him  wish  to 
do  so.  It  is  certain,  therefore,  that  employers  are, 
rightly  or  WTongly,  convinced  that  an  increase  in 
productive  power  in  proportion  to  an  increase  in 
wages  would  not  be  produced  by  thus  bettering 
the  condition  of  their  workmen.  And,  in  consider- 
ing whether  the  payment  of  municipal  employees 
at  a  higher  rate  of  wages  than  that  ruling  in  the 
market  would  or  would  not  add  to  the  cost  of  pro- 
duction, we  must  place  the  general  opinion  of 
private  employers  in  the  scales  on  one  side,  and, 
on  the  other,  the  opinions  of  certain  social  reformers 
advocating  municipal  enterprise  with  various  objects, 
few  of  whom  have  had  much  experience  in  industrial 
matters.      It   may,  in  fact,  be  confidently  assumed 


40      MUNICIPAL   TRADE   AND   SOCIALISM      [chap.  ii. 

that  the  municipal  workman  cannot  be  treated  in  the 
matter  of  wages  better  than  his  fellow-workmen  in 
private  employment  without,  to  a  certain  extent, 
adding  gratuitously  to  the  cost  of  municipal 
trading. 

(11)  Thus  none  of  the  foregoing  methods  of 
escape  from  this  dilemma  are  open  to  the  advocates 
of  municipal  enterprise.  It  is  a  mere  truism  to 
state  that  either  they  must  admit  that,  as  compared 
with  the  private  labourer,  the  municipal  labourer  does 
receive  more  favourable  treatment  as  regards  wages, 
hours  of  labour,  or  other  matters  involving  ex- 
penditure, or  they  must  abandon  all  the  arguments 
which  are  founded  on  such  better  treatment.  Those 
who  are  honestly  advocating  INIunicipal  Trade  be- 
cause of  the  superior  treatment  of  municipal  work- 
men must  adopt  the  former  alternative,  and  ought  to 
endeavour  to  prove  that  municipal  labour  is,  on  the 
average,  more  highly  paid  than  private  labour ;  an 
attempt  in  which  they  will,  with  little  doubt,  succeed. 
The  question  is  whether  this  can  be  claimed  as  one 
of  the  merits  of  Municipal  Trade  notwithstanding 
that,  as  we  have  seen,  the  cost  of  production  must 
in  this  manner  be  increased  above  what  it  would 
be  if  the  market  conditions  with  regard  to  labour 
were  adhered  to. 

(12)  Two  advantages,  as  we  have  seen,  ha\^e 
been  claimed  as  arising  from  high  wages  in  municipal 
trades ;  the  actual  advantage  to  the  workmen  em- 
ployed directly  or  indirectly  by  municipalities,  and 
the  indirect  advantage  to  workmen  on  private 
works  on  account  of  the  example  set  to  their 
employers.  As  to  the  latter  contention,  how  much 
good    can    public    bodies     do    by    setting    a    good 


CHAP.  II.]  GOOD   EXAMPLE  41 

example  ?  Obviously,  whatever  else  may  be  said, 
an  example  can  only  be  actually  useful  in  propor- 
tion to  the  extent  to  which  it  is  followed.  In 
certain  minor  matters  affecting  the  comfort  of 
workmen,  the  action  of  Local  Authorities  might 
occasionally  furnish  a  useful  lever  to  private  em- 
ployees to  enable  them  to  induce  their  employers 
to  adopt  comparatively  inexpensive  reforms,  and  on 
this  ground  it  may  perhaps  be  possible  to  justify 
some  avoidable  expenditure  which  is  calculated  to 
benefit  men  in  pubhc  employment.  But  in  important 
matters  materially  affecting  expenditure,  such  as 
wages  or  hours  of  labour,  the  example  of  munici- 
palities produces  no  effect  whatever.  It  is  im- 
possible to  believe  that,  in  the  fierce  struggle 
between  competing  producers,  wages  are  regulated 
on  other  than  purely  economic  principles.  A¥hilst 
heartily  agreeing  that  a  bad  example  should  not 
be  set,  we  may,  therefore,  conclude  that  any 
argument  in  favour  of  Municipal  Trade,  which  is 
based  on  the  benefits  to  the  workmen  in  private 
emplojnnent  arising  from  the  example  which  can 
be  set  to  their  employers  by  municipalities,  fiiils 
almost  wholly  because  that  example  in  reality 
produces  no  appreciable  effect. 

(13)  As  to  the  claim  made  in  favour  of 
Municipal  Trade  on  the  ground  of  the  actual 
benefits  felt  both  by  municipal  workmen  and  by 
contract  workmen  employed  on  municipal  works 
under  fair  wages  clauses,  it  is  necessary  to  examine 
the  effect  produced  by  their  superior  treatment 
somewhat  more  closely.  Taking  first  the  case  of 
the  construction  by  municipalities  of  sewers  or 
other  unremunerative  works,  it  has  been  seen  that, 


42      MUNICIPAL   TRADE   AND   SOCIALISM      [chap.  ii. 

if  the  average  market  conditions  of  labour  are  not 
adhered  to,  tlie  cost  of  the  works  will  thus  be  in- 
creased, and  it  follows  as  an  obvious  consequence 
that  the  revenue  raised  to  pay  for  such  works  must 
also  be  increased  to  the  same  extent.  The  result 
in  such  cases  will  be  exactly  the  same  as  if  the 
market  conditions  had  been  adhered  to,  as  if  a 
special  rate  had  been  raised,  and  as  if  the  proceeds 
of  that  rate  had  been  distributed  amongst  the 
municipal  workmen,  thus  making  their  lot  prefer- 
able to  the  lot  of  men  doing  similar  work  under 
private  employers.  As  regards  municipal  remunera- 
tive undertakings^  the  effect  of  paying  the  workmen 
wages  above  the  average  market  level  will  be  either 
the  same  as  that  above  described  in  the  case  of  un- 
remunerative  works — that  is,  the  imposition  of  an 
additional  burden  on  the  ratepayer — or  else  the  price 
of  the  gas  or  the  other  commodities  produced  must 
be  increased  in  order  to  obtain  the  increased  funds 
required  to  pay  the  additional  wages.  In  this  latter 
case,  the  result  is  exactly  the  same  as  if  a  tax  were 
levied  on  the  consumer  of  gas,  for  example,  and 
as  if  the  proceeds  of  that  tax  were  disti'ibuted 
amongst  workers  in  the  municipal  gas-works.  Thus 
to  give  exceptionally  good  terms  to  the  employees 
on  municipal  works  is  equivalent  to  paying  them 
the  ordinary  market  remuneration  and  giving  them 
in  addition  special  grants  out  of  the  proceeds  of 
taxation  raised  either  from  the  ratepayers  at  large 
or  from  the  consumers  of  the  commodities  made 
at  the  municipal  works. 

(14)  The  foregoing  considerations  will,  in  the 
opinion  of  most  people,  be  sufficient  to  condemn 
the   practice   of    paying    municipal    workmen   more 


CHAP.  II.]  WAGES   AND  TAXATION  43 

highly  than  similar  workmen  working  under  private 
employers.  Working  men  all  pay  rates,  either 
directly,  or  indirectly  through  their  rents.  Working 
men  in  enormous  numbers  travel  on  municipal 
tramways,  and  consume  gas,  water,  and  other 
products  of  ^Municipal  Trade.  HoAvever  light  the 
burden  may  be,  what  possible  excuse  can  there 
be  for  taxing  workmen  either  as  ratepayers  or 
consumers,  and  thus  reducing  their  available  income 
to  a  certain  level,  in  order  to  raise  above  that 
same  level  the  available  income  of  a  comparatively 
small  number  of  workmen  who  are  living  in  the 
same  locahty  and  doing  the  same  class  of  work? 
Why  should  the  private  workman  be  damaged  in 
the  slightest  degree  in  order  to  benefit  the 
municipal  workman  ?  The  wish  to  see  the  lot 
of  the  municipal  workman  improved,  which  all 
of  us  must  feel,  affords  no  justification  whatever 
for  such  a  proceeding. 

(15)  There  are,  moreover,  other  and  somewhat 
less  obvious  reasons  why  municipal  workmen  should 
not  be  allowed  to  become  a  specially  privileged 
class.  One  of  the  results  of  exceptionally  favourable 
treatment  must  be  to  make  municipal  employees 
abnormally  anxious  to  retain  their  positions,  and, 
as  will  be  seen  in  a  subsequent  chapter,  in  this 
manner  to  increase  the  danger  of  the  spread  of  cor- 
ruption. Then,  again,  the  raising  of  municipal  work- 
men's wages  above  the  market  level  is  dangerous, 
because,  being  based  on  no  principle  whatever, 
there  is  no  finahty  about  it.  If  it  be  admitted 
that  they  should  be  paid  5  per  cent,  more  than 
private  workmen,  why  should  we  deny  them  10  per 
cent,  or  even  50  per  cent,  higher   wages  ?     No   one 


44      MUNICIPAL  TRADE   AND   SOCIALISM      [chap.  ii. 

can  blame  any  employees  for  constantly  making 
legitimate  efforts  to  get  their  pay  increased ;  efforts 
which  will  be  peculiarly  difficult  to  resist  in  the 
case  of  municipal  workmen  if  once  the  principle  of 
paying  them  the  normal  rate  of  wages  is  abandoned. 
Moreover,  the  constant  attempt  to  obtain  an  increase 
of  wages  on  grounds  wholly  unconnected  with 
the  value  of  the  work  done  has  a  very  demoraUsing 
effect.  Lastly,  if  the  municipal  workman  is  to 
receive  what  is  equivalent  to  a  bonus  out  of  funds 
raised  by  taxation,  why  should  not  all  other  workmen 
receive  it  also  ?  Why  give  it  only  to  this  quite 
arbitrarily  selected  class  ?  It  is  perhaps  hardly 
necessary  nowadays  to  argue  against  such  a  method 
of  increasing  all  wages.  It  would  be  to  re-introduce 
the  "  rate  in  aid  of  wages "  which  has  "  long  been 
"  regarded  by  economists  as  one  of  the  worst  abuses 
"  of  the  earlier  years  of"  the  nineteenth  century.^ 
To  pay  municipal  workmen  on  any  other  scale 
than  that  ruling  in  the  private  market  is,  therefore, 
both  unjust  and  dangerous. 

(16)  No  one  now  openly  attempts  to  justify 
the  employment  of  municipal  workmen  at  high 
rates  of  wages  or  for  short  hours  on  charitable 
grounds,  or  because  work  might  thus  be  found  for 
the  unemployed  ;  for  it  is  admitted  that  public  work 
and  charitable  organisations  should,  as  a  rule,  be 
kept  separate.  Of  course,  with  shorter  hours,  more 
men  would  be  employed ;  but  favouring  the 
municipal  workman  in  this  way  is  as  objectionable 
as  giving  him  wages  above  the  market  rate ;  and  if 
he  is  treated  no  better  and  no  worse  than  the  private 
workman,  there  is  no  reason  why  more  men  should 

1  "  Democracy  and  Liberty,"  Lecky,  ii.  p.  397. 


CHAP.  II.]  CHARITABLE   EMPLOYMENT  45 

be  employed  in  a  Municipal  Trade  than  would  have 
been  employed  if  the  business  had  been  left  in  private 
hands.  If  any  charitable  plea  were  admitted  with 
regard  to  municipal  employment,  it  would  follow 
that  municipal  workmen  ought  to  be  selected  on 
some  partially  charitable  principle ;  that  is,  not 
wholly  with  regard  to  their  fitness  for  their  work. 
To  select  labourers  because  they  could  not  find 
work  elsewhere  would  lead  to  great  inefficiency 
in  all  municipal  works,  and  to  positively  dangerous 
results  in  the  case  of  sewage  works.  It  has,  no 
doubt,  been  suggested  that  no  community  should 
be  taxed  for  the  benefit  of  aliens  to  that  com- 
munity, and  that,  consequently,  a  long  residential 
qualification  should  be  insisted  on  before  selecting  a 
citizen  for  employment  on  public  works.  Any  such 
system  as  is  here  hinted  at  would  tend  to  combine 
the  evils  arising  fi-om  inefficient  work,  old  age 
pensions,  and  favouritism,  and  need  not,  therefore, 
be  discussed. 

(17)  Thus  any  excess  of  cost  of  municipal 
labour  over  private  labour  cannot  be  justified  on 
any  gi'ounds ;  and  if,  as  I  believe,  it  can  be  proved 
that  the  labour  bill  paid  by  municipalities  is,  on  the 
average,  higher  than  that  paid  by  private  proprietors, 
we  here  find  an  argument  against  IMunicipal  Trade, 
and  not  one  in  its  favour.  The  plea  for  municipal 
enterprise  because  of  the  better  treatment  of  public 
employees,  and  the  sociahstic  demand  for  collec- 
tive owTiership  on  the  grounds  of  abstract  right,  if 
admitted,  would  tell  in  favour  of  the  municipahsa- 
tion  of  all  industry.  These  pleas  must  be  rejected. 
And,  as  all  the  arguments  which  remain  to  be 
considered    tell    with    varying     force     in     different 


46      MUNICIPAL  TRADE   AND   SOCIALISM      [chap.  ii. 

circumstances,  it  follows  that  each  proposal  for  the 
municipalisation  of  an  industry  must  be  examined 
separately  on  its  merits,  and  that  there  will  be 
nothing  illogical  in  coming  to  the  conclusion  that 
some  trades  are  best  left  in  private  hands,  whilst 
others  had  better  be  transferred  to  public  manage- 
ment. 


Ill 

MONOPOLIES 

(1)  Using  the  word  "monopoly"  somewhat  loosely 
in  order  to  denote  a  business  in  which  competition 
is  improbable,  difficult,  or  impracticable,  the  increase 
in  recent  years  in  the  number  of  such  monopolies 
has,  without  doubt,  tended  to  increase  the  desire 
felt  for  JMunicipal  Trade.  Various  causes  have 
contributed  to  this  hmitation  of  competition,  and 
to  this  creation  of  monopolies,  the  most  important 
being  those  connected  with  the  "law  of  increasing 
"return,"  the  right  to  interfere  with  streets,  the 
advantages  of  a  large  clientele,  and  the  increase 
in  the  value  of  property  in  the  centre  of  large 
cities. 

(2)  In  most  industries,  and  especially  in  those 
in  which  machinery  plays  an  important  part, 
capital  expenditure  does  not  increase  in  propor- 
tion to  the  output,  and  the  cost  of  production, 
therefore,  decreases  as  the  amount  produced  in- 
creases. Consequently  the  more  business  the 
manufacturer  does,  either  the  more  profitable 
does  his  venture  become,  or  the  more  cheaply 
can  he  sell  the  goods  he  produces.  This  is  the 
law  of  increasing  return  briefly  stated,  a  law  in 
consequence  of  which  it  is  generally  difficult  for 
a  new  competitor  to  enter  any  field  of  commerce ; 

47 


48  MONOPOLIES  [chap.  hi. 

because,  if  he  begins  by  selling  at  the  same  price 
as  his  old  established  rival,  he  is,  as  a  rule,  bound 
to  suffer  a  loss  until  he  has  estabhshed  an  almost 
equally  large  connection.  This  law  has,  therefore, 
always  a  tendency  to  create  monopohes.  This 
tendency  is,  however,  peculiarly  strong  in  those 
trades  in  which  the  cheapest  method  of  transport- 
ing the  goods  ^  produced  or  supplied — such  as 
electricity,  gas,  or  water — is  by  means  of  some 
special  connection,  such  as  wires  or  pipes.  The 
circumstance  which  specially  tends  to  produce 
the  monopoly  in  these  cases  is  that  the  pipes  or 
wires  are  only  available  as  means  of  transport 
from  one  manufactory  to  the  consumer,  and  not, 
like  roads  or  railways,  from  several  competing 
manufactories  to  the  same  consumer.  The 
expense  which  each  undertaker  is  put  to  in 
making  these  connections  produces  in  itself  a 
tendency  to  confine  the  undertakings  to  a  limited 
area,  and  thus  to  check  competition  between 
different  undertakers.  INl  ore  important  than  this, 
however,  is  the  fact  that  when  a  gas  company, 
for  example,  has  made  the  necessary  connections 
with  the  majority  of  the  houses  in  a  street,  any 
would-be  competitor  will  perceive  that  he  has 
practically  only  the  chance  of  supplying  a  minority 
of  the  houses  in  that  street,  and  that,  in  order  to 
secure  that  chance,  he  would  be  put  to  almost 
as  great  a  cost  in  making  the  main  connections 
as  that  already  incurred  by  the  existing  company. 
Any    new    competing     company     must,     in     these 

1  The  word  "  goods "  is  here  used  with  the  wide  meaning  adopted  by 
Marshall  and  other  economists  ;  that  is,  as  meaning  "  all  desirable  things,  or 
things  that  satisfy  Imman  wants."  "  Principles  of  Economics,"  Marshall, 
3rd  edition,  p.  124. 


CHAP.  Ill]     AMALGAMATION   OF   COMPANIES  49 

circumstances,  enter  the   field   heavily   handicapped 
from  the  start,  and  effective   competition  is,  there- 
fore,  very   frequently   impossible.      In   consequence 
of   this   absence    of    competition,   the    consumer   of 
gas  has,  as  a  rule,  no  option  as  to  changing  from 
one  company  to  another ;   and,  in  this  and  similar 
ways,  gas-works  and  several  other  industries  in  towns 
and  thickly- populated  districts  always  become  mono- 
polies.   Since  the  chief  cause  lies  in  the  mechanical 
means  of  manufacture  or  transport  of  the  goods  pro- 
duced or  supplied,  this  tendency  for  competition  to 
become   limited   has   increased   with  the   growth   of 
science,  and  is  Hkely  to  go  on  increasing  in  future. 
(3)     ^Vhen    two    gas    companies,    for    example, 
have   received  permission   to   supply  houses   in   the 
same   area,   there   will  at   first,  no   doubt,  be   keen 
competition  in  construction  between  them  ;  but  this 
competition  is  apt  to  take  the  form  of  a  scramble 
to    obtain    a    connection    with    the    whole    of    the 
houses   in   particular   districts   and    streets.      When 
this   scramble   is   over,  and  when   the   area   is  thus 
more   or   less   completely   partitioned    out    between 
the   rivals,  they  will  make  httle  effort  to  encroach 
on  each  other's  preserves,  and  effective  competition 
m  production  will  not  be  estabhshed.     It  will  soon 
become  obvious  to  the  companies  that  it  will  pay 
them  best   to   a^oid   all   possibility   of  competition, 
either     by     amalgamating,     or     by    entering     into 
binding     contracts     rigidly    dividing    the    available 
area    between    them.       The    joint    profits    of    two 
companies   having   powers   over  the  same  area  ^\dll 
be  far  greater  if  each  lays  mains  in  half  the  new 
streets  as   they   are   built   than   if    both    lay   mains 
in   all   the   streets.      Thus   in   all  districts,  even  in 

D 


50  MONOPOLIES  [chap.  hi. 

those  in  which  competition  is  estabhshed  in  the 
first  instance,  the  hiw  of  increasing  return  tends 
to  make  rival  firms  amalgamate  with  each  other, 
thus  entirely  putting  an  end  to  all  competition 
in  production. 

(4)    The    right    to    interfere    with    the    streets, 
which   many   companies   must   acquire   in   order   to 
carry   on    tlieir    business,   is,   moreover,    in   itself    a 
cause    tending    to    produce    monopolies,    quite    in- 
dependently  of   the   interests    of    these    companies 
themselves.       Where   there   is    any   competition    in 
the    same    street,   and   w^here   two    companies   have 
been  gi-anted  the  right  to  break  up  that  street,  the 
Local  Authorities  and  the  public  soon  find  out  that 
the    inconvenience   is   greater    than    it    would   have 
been  if  only  one  such  company  had  had  that  right. 
If  many  companies  possess  these  rights,  the  nuisance 
becomes    intolerable.      At    one    time    as    many    as 
six  gas  companies   had  laid  their   mains  in  Oxford 
Street,  thus  causing  most  serious  inconvenience,  an 
inconvenience    which    was    only    obviated    by    the 
metropolitan     area     being     divided     out     amongst 
such    of    the    rival    firms    as    had    not    previously 
amalgamated.      To   take   another  somewhat   similar 
instance,  as  many  as  thirty-nine  tramway  companies 
were  deliberately  given  charter-rights  between  1857 
and  1874  in  I'hiladelphia  with  the  view  of  creating 
competition ;  but  from  the  outset  effective  competi- 
tion was  not  secured.      Amalgamation   commenced 
in   1864,  and  by   1896  one  company  was  operating 
nineteen -twentieths  of  the  total  mileage  of  that  city.^ 
In  fact  these  street  rights  often  tend  to  make  Local 

1  "Street  Railway   System   of    Philadelphia,''   F.   W.    Spiers  (Johns 
Hopkins  University  Series),  p.  28. 


CHAP.  III.]        ESTABLISHED   CONNECTIONS  51 

Authorities  favour  the  amalgamation  of  competing 
companies,  and  in  the  end  all  parties  seem  to 
conspire  together  in  such  cases  to  prevent  effective 
competition,  and  to  rid  these  monopoUsts  of  their 
rivals. 

(5)  Of  the  above-mentioned  four  causes  tending 
to  produce  monopolies,  the  third  was  due  to  the  fact 
that  in  some  cases  it  is  a  positive  advantage  to  the 
new  "  consumer "  to  deal  with  the  company  which 
has  the  largest  clientele.  If,  for  example,  a  tele- 
phone company  once  becomes  firmly  established 
in  any  locality,  no  one  would  dream,  other  things 
being  equal,  of  seeking  a  connection  with  a 
recently  established  rival  company ;  for,  if  the  two 
concerns  were  really  competing,  the  old  company 
would  certainly  not  give  any  facilities  to  the  sub- 
scribers to  the  rival  firm  to  enable  them  to 
communicate  with  their  own  subscribers.  In  such 
cases,  therefore,  competitors  are  not  likely  to  appear 
on  the  scene.  Again,  old  estabhshed  tramway 
companies  have  great  advantages  as  compared 
with  any  isolated  rival  in  extending  their  lines  into 
contiguous  districts ;  and  they  are  therefore 
proportionately  safeguarded  from  competition.  Thus 
in  telephones,  tramways,  and  many  other  businesses, 
much  will  be  gained  by  both  parties  by  amalgama- 
tion, because  the  larger  the  field  covered  tlie  less 
will  be  the  chance  of  competition.  The  advantages 
to  private  proprietors  arising  from  the  estabhshment 
of  an  extensive  connection  constitute  a  potent  cause 
tending  to  produce  monopolies. 

(6)  Lastly,  taking  again  the  case  of  gas 
companies,  such  undertakings  are  usually  established 
in     growing     neighbourhoods,     where     property     is 


52  MONOPOLIES  [chap.  hi. 

increasing  in  value  with  every  increase  in  the 
population.  The  mere  fact  of  the  difficulty  of 
acquiring  land  on  which  to  build  rival  works,  or 
rather  the  price  which  would  have  to  be  paid  for 
it,  adds  materially  in  such  cases  to  the  risk  involved 
in  starting  a  competing  concern ;  and  in  this  way 
the  position  held  by  the  owners  of  many  monopolies 
is  additionally  strengthened. 

(7)  Thus  many  industries  are  certain  to  become 
monopolies  in  the  sense  in  which  the  word  is  here 
used ;  that  is  to  say  that  the  fares  or  prices  charged 
by  the  proprietors  of  such  industries  will  be  more 
or  less  unaffected  by  competition.  AVhere  this  is 
the  case,  prices,  qualities,  and  other  matters  must  be 
to  a  certain  extent  controlled  by  the  State  ;  and  such, 
as  a  matter  of  fact,  is  the  practice  in  this  country. 
If,  for  example,  the  right  to  run  a  tramway  through 
a  town  were  given  to  a  company  without  any  stipu- 
lation being  made  as  to  the  fares  which  might  be 
charged,  that  company  might  be  able  to  make 
very  large  profits,  and  the  transaction  would  amount 
to  parting  with  valuable  public  rights  for  no  adequate 
consideration.  Even  if  this  objection  to  granting 
unrestricted  concessions  could  be  removed  by  making 
proprietors  pay  suitable  rents  for  the  privileges 
granted,  as  possibly  it  might  be,  there  would  remain 
other  reasons  why  the  ftires  and  prices  charged  by 
monopolists  would  be,  and  should  be,  regulated  by 
the  State.  Citizens  not  only  desire  low  prices,  but 
they  also  want  the  greatest  certainty  attainable  as 
to  the  prices  which  will  be  cliarged  in  future.  In 
the  case  of  unrestricted  monopolies,  there  can  be  no 
such  ceitiiinty  ;  for  the  proprietors  will  often  be  able 
to   raise   prices   quite  independently  of  the   cost  of 


CHAP.  Ill]      CONTROL   OF   PRIVATE   TRADE  53 

production.  In  the  case  of  water  supply,  for 
example,  as  long  as  no  competitor  appeared  on  the 
field,  water  companies,  if  unrestricted,  could  raise 
their  charges  by  almost  the  amount  of  any  increase 
in  the  value  of  the  property  of  the  water  consumers  ; 
because  each  consumer  would,  in  such  cases,  prefer 
to  pay  more  for  his  water  supply  rather  than  be 
forced  to  leave  his  house.  Uncertainty  as  to  the 
future  may  be  not  only  distasteful  but  positively 
injurious  to  the  community ;  for  it  may  check 
the  growth  of  industries  and  the  development  of 
new  districts.  Then  again  the  granting  of  unre- 
stricted concessions  may  confer  on  the  proprietors 
very  great  powers  over  consumers,  especially  if 
the  goods  supphed  are  such  as  would  be  described 
as  necessaries ;  and  such  powers  both  are,  and  are 
felt  to  be,  very  objectionable.  In  the  United 
States,  where  private  trade  is  less  regulated  than 
it  is  in  England,  the  evil  effects  of  unregulated 
monopolies  are  more  clearly  seen ;  and  we  are  told 
that  in  that  country  '*  discrimination  and  extortion  " 
are  two  of  the  main  causes  which  have  led  to  a 
demand  for  a  change  from  the  existing  condition  of 
things.^  For  these  and  other  reasons,  we  may  be 
certain  that  trades  which  tend  to  become  monopolies 
will  be  always  more  or  less  regulated  by  the  State  ; 
and  the  only  practical  question  is  as  to  how  this 
regulation  should  be  effected. 

(8)  The  State  can  refuse  to  gi-ant  to  any 
company  the  right  to  break  up  the  streets,  etc., 
unless  that  company  will  agree  to  abide  by  any 
conditions  which  the  State  may  prescribe  ;  and  in 
this  manner  a  municipality  may  acquire  the  desired 

*  Tlie  Independent,  6tli  May  1897,  p.  572,  Professor  E.  R.  A.  Selignian. 


54  MONOPOLIES  [chap.  hi. 

control  over  any  industry  which  tends  to  become  a 
monopoly  because  of  such  rights.  Public  control  over 
any  industry  may  also  be  acquired  by  the  Local 
Authorities  themselves  undertaking  the  management 
of  that  industry ;  and  this  they  may  do  either  by 
building  the  necessary  works  themselves,  or  by 
buying  out  the  private  proprietors.  Thus,  as 
control  of  some  sort  is  necessary  in  the  case  of 
monopolies,  the  choice  lies  between  municipahsation 
and  the  control  of  private  undertakers  by  the  State. 
Without  doubt  the  Local  Authority,  or  the  repre- 
sentatives of  the  people,  can  acquire  the  most 
complete  control  possible  over  any  industry  by 
municipalising  it ;  and  the  main  question  to  be 
considered  in  this  volume  is  whether  in  any 
particular  instance  the  advantages  thus  gained 
are  or  are  not  outweighed  by  the  disadvantages 
which,  as  will  be  seen  later,  always  accom- 
pany the  management  of  any  industry  by  a  public 
body. 

(9)  In  the  case  of  all  monopolies  now  frequently 
municipalised,  the  proprietors  must  acquire  some 
rights  over  the  streets.  This  is  not,  of  course,  the 
case,  as  a  rule,  with  competitive  trades  ;  and  although 
little  progress  has  actually  been  made  in  the  direction 
of  the  public  ownership  of  competitive  industries, 
this  is  a  subject  which  is  coming  more  and  more 
to  the  front,  and  one  which  can  by  no  means  be 
neglected.  The  difference  between  competitive 
industries  and  monopolies  is,  however,  rather  one 
of  degree  than  one  of  kind ;  and  almost  all  trades 
are,  and  I  think  should  be,  to  a  certain  extent, 
subject  to  State  control.  In  the  case  of  competitive 
industries  the  State   does  not,  it   is   true,  grant  to 


CHAP.  Ill]  COMPETITIVE   TRADE  55 

the  undertakers  any  special  rights ;  the  State  merely 
declares  that  it  shall  not  be  lawful  to  carry  them  on 
unless  certain  regulations  are  obeyed,  a  prohibition 
which  may  be  justified  merely  on  the  ground  of  the 
beneficial  results  produced.  In  fact  many  of  the 
arguments  here  discussed  will  be  found  to  be 
applicable  both  to  monopolies  and  to  competitive 
trades,  though  with  very  different  force  in  the  two 
eases. 

(10)  It  is  very  important  to  bear  in  mind  during 
every  stage  of  this  controversy  that  the  real  question 
at  issue  is  the  choice  between  IVIunicipal  Trade  and 
the  State  control  of  private  undertakers.  Many 
economists  have  laid  do"v\Ti  criteria  by  means  of 
which  we  should  be  able  to  determine  whether  any 
particular  industry  is  or  is  not  likely  to  be  efficiently 
managed  by  a  government  department.  Jevons,  for 
example,  gives  four  such  criteria.  The  first  declares 
that  success  is  probable  "  where  numberless  wide- 
"  spread  operations  can  only  be  efficiently  connected, 
"  united,  and  co-ordinated  in  a  single  all-extensive 
"government  system."  This,  however,  amounts  to 
little  more  than  declaring  that  the  Government, 
in  certain  cases,  w^here  the  operations  are  very 
extensive,  can  manage  the  business  more  effectively 
than  any  private  undertaker  ;  a  remark  which,  though 
certainly  to  the  point,  is  more  applicable  to  such 
cases  as  that  of  a  national  postal  system  than  to 
any  IMunicipal  Trade.  As  to  the  three  other 
criteria,  it  will  be  observed  that  they  not  only 
indicate  the  circumstances  in  which  public  bodies 
can  themselves  effectively  undertake  the  actual 
manageraent  or  working  of  a  trade,  but  tliey  also 
point  to  the  conditions  which,  if  fulfilled,  make  it 


56  MONOPOLIES  [chap.  tit. 

easy  for  the  State   to   control  that  trade  whilst  in 
private  hands.     These  criteria  are : — 

(2)  "  Where   the   operations   possess   an   invari- 

"  able  routine-like  character. 

(3)  "Where    they    are    performed    under    the 

"  public  eye  or  for  the  service  of 
"  individuals  who  will  immediately  detect 
"  and  expose  any  failure  or  laxity. 

(4)  "Where  there  is  but  httle  capital  expendi- 

"ture,  so   that  each   year's   revenue  and 
"  expense  account    shall    represent    with 
"  sufficient  accuracy  the  real  commercial 
"  conditions  of  the  department."  ^ 
This  last  criterion   also   indicates,  I  think,  with 
fair   accuracy   a   condition   which   must   be   fulfilled 
if  it  is  to  be  easy  to  determine  whether  a  private 
undertaker  is  or  is  not  charging  a  fair  price;  and, 
as  all  these  last  three  criteria  point  to  circumstances 
which  facilitate  both  State  control  and  State  manage- 
ment, they  help  us  but  little  in  the  choice  between 
the  two. 

(11)  At  the  present  moment  ^Municipal  Trade  is 
apparently  more  popular  than  the  State  regulation  of 
private  trade ;  and  this  popularity  has  been  claimed 
as  furnishing  an  argument  in  its  favour.  In  order 
to  decide  whether  this  claim  can  be  admitted  or  not, 
several  questions  have  to  be  considered.  To  what 
extent  does  this  popularity  depend  on  mere  un- 
reasoned sentiment?  Or  does  it  spring  entirely 
from  the  belief  that  JMunicipal  Trade  is  on  the  whole 
beneficial  to  the  community  ?  And  to  what  extent 
can  such  beliefs,  even  if  widespread,  be  relied  on 
as  indicating  that  such  benefits  will  really  accrue  ? 

'  Jovr.  of  the  Manchester  Stats.  Soc,  W.  S.  Jevons,  April  1867. 


cH.^p.  III.]  POPULARITY  57 

These,  and  other  doubtful  points,  must  be  examined 
before  we  can  decide  whether  the  alleged  popularity 
of  JVIunicipal  Trade  should  be  allowed  to  tell  in  its 
favour. 

(12)  As  regards  any  sentiment  in  favour  of 
JVIunicipal  Trade — that  is  to  say,  any  popularity 
which  is  not  based  on  alleged  definite  intrinsic  merits 
— Avhere  there  is,  as  in  England,  a  keen  interest  in 
local  affairs,  it  is  but  natural  that  there  should  be 
a  desire  for  something  to  expend  that  interest  on. 
A  feeling  of  gratification  at  their  city's  achievements 
is  felt  by  most  citizens,  especially  by  those  possessing 
the  municipal  franchise,  because  the  sentiment  that 
they  have  a  share  in  the  ownership  and  management 
of  large  municipal  works  is  agreeable  to  them,  even 
if  that  share  be  excessively  small ;  and  such  feelings 
will  create  a  desire  for  a  further  increase  in  the 
number  of  the  functions  to  be  performed  by 
municipalities.  But  does  this  desire,  founded  on 
this  feeling,  indicate  in  the  shghtest  degree  that  any 
such  increase  in  the  functions  performed  by  the  State 
would  be  beneficial  ?  The  interest  felt  by  citizens  in 
civic  affairs  may  be  increased  by  the  initiation  of  new 
municipal  enterprises ;  and  JNlunicipal  Trade  may 
thus  produce  a  certain  beneficial  result.  But  that  is 
not  the  point  at  present  under  discussion.  We  are 
considering  whether  the  popularity  of  INIunicipal 
Trade  proves  it  to  be  intrinsically  beneficial ;  and, 
as  far  as  popularity  depends  on  mere  sentiment,  it 
obviously  proves  nothing. 

(13)  As  regards  such  popularity  as  is  de- 
pendent on  an  actual  belief  in  the  beneficial 
operation  of  Municipal  Trade,  it  is  perhaps 
unnecessary  here  to  consider   at  length  how  wide- 


58  MONOPOLIES  [chap.  hi. 

spread  that  popularity  really  is.  One  difficulty  in 
attempting  to  form  an  opinion  on  tliis  matter  should, 
however,  be  noticed.  A\^here  Municipal  Trade 
is  extensively  undertaken,  the  various  municipal 
enterprises  must  be  frequently  discussed  at  public 
meetings ;  and,  if  either  the  poHcy  or  the 
management  of  the  Councillors  is  criticised,  an 
energetic  defence  will  be  made  by  themselves  or 
their  friends,  who  will  take  care  that  their  praise 
of  the  local  institutions  is  well  reported  in  the 
local  press.  On  the  other  hand,  in  towns  where 
similar  undertakings  are  left  in  private  hands, 
their  management  is  less  likely  to  be  attacked 
because  such  attacks  would  serve  no  party 
purpose  unless  the  attack  is  for  the  purpose  of 
bringing  the  works  under  municipal  management ; 
and,  if  any  attack  is  made  on  other  grounds,  there 
is  much  less  likeUhood  of  there  being  any  one 
present  desirous  of  speaking  in  defence  of  the 
private  proprietors.  Thus  the  contrast  between 
the  records  of  pubUc  meetings  in  localities  where 
INIunicipal  Trade  flourishes  with  those  in  localities 
where  monopolies  are  generally  managed  by  private 
proprietors  creates  an  erroneous  impression  as  to 
the  popularity  of  ^lunicipal  Trade,  and  may  make 
it  appear  more  popular  than  it  really  is. 

(14)  AVithout  doubt,  however,  this  popularity  in 
England  is  both  widespread  and  rational ;  and  it  is, 
therefore,  necessary  to  enquire  on  what  foundation 
it  is  built.  In  order  that  it  may  be  possible  for 
any  one  to  form  an  independent  opinion  as  to  the 
relative  merits  of  municipal  and  private  trade, 
he  must  have  some  means  of  comparing  the  two 
methods   of  management   as   applied    to    the   same 


CHAP.  III.]  PUBLIC   OPINION  59 

trade  under  somewhat  similar  circumstances. 
With  very  few  people  is  this  possible ;  and  this 
creates  a  tendency  in  almost  every  one  to  rely 
largely  on  the  opinion  of  others.  In  order  to 
estimate  the  value  of  public  opinion,  we  ought, 
therefore,  to  scrutinise  very  carefully  those  in- 
dividual judgments  which  are  most  likely  to 
influence  the  opinion  of  the  many.  In  the  fu'st 
place,  are  those  who  rely  on  the  opinions  of  others 
likely  to  have  both  sides  of  the  controversy 
placed  before  them  with  equal  force  ?  This  is  very 
unlikely  to  be  the  case.  We  have  just  seen  that 
the  private  proprietor,  whose  position  does  not 
depend  on  the  ballot  box,  will  have  a  far  less 
pressing  object  than  the  municipal  councillor  in 
getting  the  management  of  his  works  praised  in 
the  pubUc  press.  Moreover,  if  we  go  to  the  secretary 
of  a  private  gas  company,  for  example,  he  may 
decline  to  give  us  the  information  we  require. 
But  if  we  go  to  the  town  clerk  of  some  big 
city,  he  will  probably  put  us  in  the  way 
of  obtaining  copious  printed  reports  on  the 
JNIunicipal  Gas  AA^orks,  generally  of  a  fjivourable 
character.  The  readily  available  evidence  in 
favour  of  INIunicipal  Trade  is,  in  fact,  far  more 
voluminous  than  that  in  favour  of  private  trade ; 
and  this  alone  certainly  makes  comparisons 
difficult,  and  probably  makes  public  opinion  some- 
what unduly  favourable  to  municipal  enterprise. 

(15)  This  less  voluminous  evidence  in  favour 
of  private  trade  must  be  largely  obtained  from 
the  officials  of  private  companies  ;  and,  being  thus 
obtained,  it  will  be.  and,  what  is  more  to  the 
point   at  present,   it  will  generally   be   held   to   be 


60  MONOPOLIES  [chap.  m. 

prejudiced  by  a  desire  on  the  part  of  these  officials 
to  consider  the  interest  of  their  shareholders  rather 
than  that  of  tlie  public  generally.  On  the  other 
liand,  the  more  voluminous  evidence  in  favour  of 
Municipal  Trade,  which  must  be  largely  obtained 
from  municipal  officials,  will  generally  be  held  to  be 
unprejudiced,  as  being  given  in  the  public  interest; 
and  it  will  therefore  carry  all  the  more  weight  in 
directing  public  opinion.  But  can  these  official 
utterances  be  regarded  as  being  free  from  prejudice  ? 
They  are  usually  very  optimistic,  and  the  question 
is  whether  this  optimism  is  based  on  a  calm 
judgment  of  the  relative  advantages  and  dis- 
advantages of  the  two  systems.  Town  councillors 
are  under  the  obvious  temptation,  for  party 
purposes,  to  dwell  on  the  merits  of  their  own 
management  to  the  neglect  of  its  demerits ;  and, 
even  where  their  convictions  are  fully  stated,  these 
expressions  of  opinion  are  likely  to  be  unduly 
favourable  to  Municipal  Trade.  It  is  perhaps 
natural  that  the  greater  the  number  of  duties 
performed  by  town  councillors,  the  greater  should 
be  held  to  be  the  dignity  of  the  council ;  and 
the  desire  to  place  their  council  on  a  level 
with  other  councils,  and,  by  a  slight  confusion 
of  mind,  the  desire  to  place  their  town  on  a 
level  with  other  towns,  often  makes  councillors 
advocate  new  municipal  enterprises.  The  love  of 
work  and  responsibility  is  to  a  very  large  extent 
the  underlying  motive  which  induces  men  to 
undertake  the  useful  but  thankless  task  of  town 
councillor ;  and,  M^here  this  love  of  work  and 
responsibility  exists,  there  it  is  certain  that  a 
desire    will    be    felt    to    increase    the    amount    of 


CHAP.  III.]  VIEWS   OF   OFFICIALS  61 

work  to  be  undertaken  or  supervised.  Those 
councillors,  who  because  of  their  energy  have 
the  most  influence,  will  generally  be  those  most 
tempted  to  look  with  favour  on  new  projects 
independently  of  their  merits.  As  to  existing 
enterprises,  many  councillors  will  never  before  their 
election  have  had  any  connection  with  large 
undertakings;  and  this  novelty  may  make  them 
unduly  proud  of  the  work  for  which  their  council 
has  already  made  itself  responsible.  AVhen  muni- 
cipal problems  are  considered  by  councillors  in 
this  spirit,  it  is  not  likely  that  a  system  which 
gives  them  comparatively  little  responsibility  will 
be  weighed  without  any  prejudice  against  a  system 
under  which  full  scope  is  given  for  satisfying  their 
undoubtedly  high  aspirations.  All  men  are  apt  to 
confuse  trying  to  do  good  with  doing  good,  and 
energetic  councillors  are  certain  to  take  an  unduly 
favourable  view  of  the  municipal  enterprises  which 
they  are  managing  for  the  benefit  of  the  public. 

(16)  Somewhat  the  same  influences  which  affect 
councillors  will  also  afifect  salaried  municipal  officials, 
and  consequently,  in  their  case  also,  the  more 
energetic  and  able  they  are,  the  more  likely  will 
they  be  to  view  with  favour  new  projects  connected 
with  iNIunicipal  Trade.  Moreover,  new  municipal 
enterprises  must  often  be  accompanied  by  an  increase 
in  the  salaries  of  the  permanent  officials ;  and,  when 
Parliament  has  to  be  approached,  considerable  fees 
have  to  be  paid  to  the  solicitors  employed,  many 
of  whom  also  act  as  town  clerks ;  and  it  is  absurd 
to  deny  that  many  men  are  consciously,  or  un- 
consciously, influenced  in  ftivour  of  any  project 
which   may  increase   their   emoluments.     But,   even 


62  MONOPOLIES  [chap,  hi 

if  very  little  weight  be  attached  to  this  latter 
consideration,  it  can  hardly  be  asserted  that  the 
evidence  given  by  miniicipal  ofiicials  is  unprejudiced  ; 
a  point  which  it  is  important  to  note,  because  not 
only  do  they  supply  the  })ulk  of  the  written  evidence 
with  regard  to  Municipal  Trade,  but  they  also  have 
great  power  in  influencing  town  councils  on  all 
such  questions. 

(17)  Elected  representatives  undertaking  Muni- 
cipal Trade  occupy  a  somewhat  anomalous  position ; 
for  not  only  do  they  represent  the  buyers  and 
consumers,  but  they  are  also  the  manufacturers 
and  salesmen.  Under  existing  social  conditions, 
we  are  not  accustomed  to  this  dual  position ;  and 
a  councillor  is  consequently  apt  to  devote  his 
attention  mainly  to  one  attribute  of  his  position 
to  the  partial  exclusion  of  the  other.  Socialists, 
who  advocate  INIunicipal  Trade  for  reasons  already 
given,  are  most  Ukely  to  view  the  matter  from 
the  consumer's  standpoint.  On  the  other  hand, 
a  business  man,  when  elected  on  to  a  council,  may 
suddenly  find  himself  associated  in  the  manage- 
ment of  an  industrial  monopoly,  the  price  of  the 
produce  of  which  he  can  to  a  great  extent  control. 
The  sensation  is  new  to  him  and  pleasant ;  and, 
if  the  consumers  are  fairly  contented,  his  satisfac- 
tion as  a  manufacturer  and  seller  may  stifle  any 
little  doubts  he  may  feel  when  he  regards  himself 
as  a  representative  of  the  consumers.  Thus  the 
dual  position  occupied  by  councillors  may  perhaps 
partly  account  for  the  anomaly  sometimes  seen  of 
Socialists  and  conservative  men  of  business  joining 
together  in  the  advocacy  of  the  public  control  of 
certain  industries. 


CHAP.  III.]  VIEWS   OF   ORIGINATORS  63 

(18)  It  is  far  easier  for  existing  councillors  and 
officials  to  throw  doubts  on  the  wisdom  of  their 
predecessors  for  having  initiated  some  municipal 
enterprise  than  in  a  similar  way  to  criticise  their 
own  actions  in  having  taken  a  similar  step.  Few 
men  are  strong-minded  enough  to  search  for 
evidence  which  might  convict  themselves  of  an  error 
in  judgment  with  regard  to  any  matter,  especially 
when  they  feel  that  it  is  too  late  to  retrace  their 
steps ;  and  few  who  have  actually  shared  in 
the  heavy  labour  involved  in  placing  some  trade 
under  municipal  control  will  or  can  impartially 
consider  whether  it  had  not  better  have  been  left 
in  private  hands.  Though  their  successors  may 
perceive  it,  the  originators  of  such  schemes  are 
not  likely  to  detect  any  error  they  may  have 
made,  and  consequently  the  prejudice  in  favour  of 
municipal  management  in  official  circles  will  be 
most  strongly  felt  in  periods  when  most  progress 
is  being  made  in  this  direction.  It  has  been  seen 
that  a  very  large  proportion  of  English  municipal 
trades  have  been  but  recently  established ;  and 
official  utterances  concerning  them  are  therefore 
at  present  especially  unreliable  as  indications  of 
their  success. 

(19)  Thus  we  see  that  popular  interest  in  local 
affairs  and  official  energy  are  forces  tending  to 
promote  JNIunicipal  Trade,  even  in  cases  where 
the  wiser  course  would  be  to  subject  the  private 
proprietor  to  adequate  control.  The  interest  felt 
by  the  pubhc  in  local  affiiirs  is  nowhere  greater 
than  in  England ;  and,  whatever  view  may  be 
taken  as  to  the  wisdom  of  Municipal  Trade,  it  is 
not   surprising,  therefore,  to   find   that   it   has    been 


64  MONOPOLIES  [chap.  hi. 

practi.sed  nowhere  more  extensi\Tly  than  with  us. 
Though  thi.s  interest  in  local  affairs  is  of  enormous 
value  in  ensining  that  all  work  undertaken  will 
be  well  done,  it  is  of  less  use  as  a  safeguard  against 
the  initiation  of  unwise  municipal  enterprises. 
Popular  judgments  on  such  matters  are  largely 
guided  by  official  utterances ;  official  utterances 
are  certain  to  be  prejudiced  in  favour  of  municipal 
management ;  and  the  popularity  of  any  municipal 
enterprise  is  therefore  an  uncertain  guide  as  to  the 
benefits  which  have  actually  been  derived  from  it. 

(20)  But,  even  if  popular  approval  could  be  taken 
as  a  proof  that  a  community  had  actually  experienced 
benefits  from  the  municipalisation  of  any  particular 
trade,  would  it  necessarily  follow  that  this  step  had 
been  a  wise  one  ?  Must  we  not  look  to  the  ultimate 
results  as  well  as  to  the  immediate  consequences  ? 
And  is  it  not  possible  that  the  system  which  works 
best  in  the  long  run  may  not  be  that  which  bears 
the  best  fruit  at  fii'st  ?  It  will  be  seen  in  a  subsequent 
chapter  that  INlunicipal  Trade  tends  to  foster  munici- 
pal corruption.  But,  when  it  has  this  evil  effect,  the 
harmful  results  are  only  gradually  produced.  The 
additional  work  thrown  on  Municipal  Councils 
by  municipal  trading  operations  also  has  a  harmful 
tendency,  the  full  influence  of  wliich  is  not  felt  for 
many  years.  There  are,  moreover,  other  and  less 
subtle  reasons  for  suspecting  that  the  beneficial 
results  arising  fi-om  the  municipalisation  of  any  in- 
stitution may  be  only  of  a  temporary  character. 
JNIanagement  depends  more  on  the  men  employed 
as  managers  than  on  the  system  imder  which  they 
work ;  and,  as  Municipal  Trade  is  especially  likely  to 
be  advocated   in  the  case  of  an  industry  where  the 


CHAP.  Ill]  CHANGE   OF   MANAGEMENT  65 

private  managers  are  inefficient,  there  is  often  an 
exceptionally  favourable  opportunity  for  the  pro- 
duction of  beneficial  results.  New  brooms  sweep 
clean,  whereas  old  officials,  public  or  private,  are 
apt  to  become  sleepy  and  inefficient.  Any  reform 
which  brings  about  a  considerable  change  in  the 
personnel,  may,  therefore,  do  some  good  for  the  time 
being  without  producing  any  lasting  results.  Thus, 
for  all  these  reasons,  we  should  expect  to  find  that 
good  results  might  often  immediately  follow  the 
municipalisation  of  an  industry,  even  if  it  would 
really  be  best  for  the  community  in  the  long  run 
that  the  trade  should  remain  in  private  hands ;  and, 
in  so  far  as  popularity  is  dependent  on  immediate 
results,  it  must  be  discounted  accordingly  as  a  guide 
for  future  action. 

(21)  Here  the  importance  of  remembering  that 
the  choice  lies  between  Municipal  Trade  and  the 
regulation  of  private  trade  becomes  evident.  The 
effect  both  of  the  municipahsation  of  an  industry 
and  of  some  modification  of  the  legislation  affecting 
it  whilst  in  private  hands  might  be  beneficial ;  and 
the  question  is — which  would  be  most  beneficial  ? 
To  completely  establish  the  case  in  favour  of 
Municipal  Trade,  it  is  not  sufficient  to  prove  that  it 
has  been  on  the  whole  "  a  brilhant  success " ;  for  it 
must  be  shown,  not  only  that  Local  Authorities 
have,  generally  speaking,  managed  these  industrial 
undertakings  better  than  the  replaced  private  pro- 
prietors, but  also  that  better  results  could  not  have 
been  produced  in  some  other  way.  It  is  not  wise, 
for  example,  merely  to  compare  gas  -  works  under 
municipal  management  with  the  same  works  as  they 
were  found  under  private  management,  without  at 


66  MONOPOLIES  [chav.  m. 

the  same  time  considering  the  improvements  which 
miglit  hiive  resulted  from  reforms  in  the  hiws 
affecting  private  gas-works.  Even  if  a  ftnourable 
popular  judgment  could  be  accepted  as  a  conclusive 
indication  that,  on  the  supposition  that  no  change 
would  be  made  in  existing  legislation,  beneficial 
results  fi'om  the  municipalisation  of  any  particular 
industry  would  be  permanently  felt,  it  woidd  not 
follow  as  a  logical  consequence  that  that  was  the 
best  reform  which  could  have  been  adopted. 

(22)  Public  opinion  is,  moreover,  far  too  much 
swayed  by  obvious  results  and  obvious  arguments. 
The  pride  felt  by  independent  citizens  in  tlie 
municipal  ownership  of  large  enterprises,  which  has 
been  mentioned  as  an  unreasonable  sentiment 
tending  to  promote  INIunicipal  Trade,  is  no  doubt 
in  most  cases  accompanied  by  the  belief  that 
municipal  property  is  profitable,  that  the  public 
revenues  are  increased  by  such  public  possessions, 
and  that  consequently  taxation  will  be  lessened 
when  Municipal  Trade  is  undertaken.  In  subsequent 
chapters  dealing  with  municipal  finance  it  will  be 
seen  that  it  is  extraordinarily  difficult  to  estimate 
what  has  been  the  result,  on  the  average,  of  Municipal 
Trade  on  municipal  taxation,  because  the  obvious 
facts  standing  by  themselves  are  most  misleading. 
Now  the  ordinary  citizen  who  is  told  that  the  fares 
on  tramways  are  usually  lowered  when  municipalities 
take  over  the  management  of  private  lines  will  be 
much  impressed  by  this  fact ;  whereas  he  will  hardly 
Usten  to  any  reasoning  tending  to  prove  that,  had 
proper  precautions  been  taken,  the  fares  miglit  have 
been  reduced  as  much  or  even  more  had  the  tram- 
ways  been    allowed    to    remain    in    private   hands. 


CHAP.  Ill]  INDIRECT  INFLUENCES  67 

Again,  if  it  can  be  shown  that  the  price  of  gas  made 
by  municipal  works  is,  on  the  average,  lower  than 
the  price  of  gas  made  by  private  companies,  this 
fact  is  easily  grasped  by  every  householder ;  whereas 
comparatively  few  will  take  the  trouble  to  consider 
whether  various  circumstances  do  not  on  the  average 
favour  the  municipalities  as  compared  with  the 
private  producers,  and  whether,  if  this  be  the  case, 
such  average  comparisons  are  not  absolutely  worth- 
less. Still  more  likely  to  be  overlooked  by  the 
casual  enquirer  are  the  arguments  against  ^Municipal 
Trade  which  depend  on  the  increased  chances  of 
corruption,  the  increased  work  thrown  on  the  Local 
Authorities,  and  the  advantages  of  free  competition. 
"The  good  which  State  interference  does  is  often 
"  something  visible  and  tangible.  The  evil  which  it 
"  does  is  much  more  indirect,  and  can  only  be  appre- 
"  ciated  by  careful  study."  ^  Popularity  is,  therefore, 
a  singularly  delusive  test  of  the  success  of  public 
institutions. 

(23)  Thus  we  see  that  there  are  many 
circumstances  which  have  tended  to  make  certain 
trades  exhibit  the  characteristics  of  monopolies ; 
that  this  tendency  is  increasing  with  the  advance- 
ment of  science ;  that  the  importance  of  the  subject 
is  increasing  with  the  increase  of  urban  as  compared 
with  rural  population ;  and  that  the  choice  lies 
practically  between  miuiicipalising  these  industries, 
and  subjecting  them  to  a  considerable  amount  of 
State  control.  The  circumstances  connected  witli 
truly  competitive  trades  are  no  doubt  very  different ; 
but  the  same  choice  exists,  and  most  of  the  argu- 
ments  here   used   are   applicable  with   increased   or 

1  "Economics,"  Hadley,  p.  18. 


68  MONOPOLIES  [chap.  hi. 

diminished  strength  to  them  as  well  as  to  monopolies. 
That  it  is  a  choice  between  two  alternatives  is  often 
forgotten,  especially  by  those  who  are  satisfied  by  a 
mere  demonstration  of  the  "  success  "  of  JNIunicipal 
Trade.  Municipal  Trade  is  now  probably  more 
popular  than  the  State  regulation  of  private  trade ; 
but  the  praise  of  Municipal  Trade  in  periodical 
literature  is  an  unsure  guide  as  to  its  real  popularity. 
The  many,  who  are  incapable  of  forming  an  inde- 
pendent opinion  on  this  subject,  frequently  rely  on 
those  few  who  express  their  opinions  freely,  however 
they  may  be  formed.  Town  councillors  and  civic 
officials,  who  are  naturally  prejudiced  in  favour  of 
the  results  of  their  own  management,  have  many 
opportunities  of  influencing  pubhc  opinion ;  whilst 
the  officials  of  private  companies,  who  are  no  doubt 
prejudiced  in  the  opposite  direction,  are  less  wilhng 
and  less  able  to  make  their  views  widely  known. 
For  these  reasons,  and  because  most  men  are  too 
much  swayed  by  the  more  obvious  facts  and 
arguments,  popularity  cannot  be  accepted  as  a 
weighty  indication  that  Municipal  Trade  is  the  reform 
which  is  most  beneficial  and  most  needed.  The 
evidence  on  both  sides  is  no  doubt  prejudiced ;  and 
those  embarking  on  this  enquiry  should  put  aside 
preconceived  ideas,  and  allow  their  judgments  to  be 
swayed  by  none  but  logical  arguments  and  well 
established  facts. 


IV 

THE    ADVANTAGES    OF    MUNICIPAL    TRADE 

(1)  It  has  been  stated  that,  in  certain  cities  in  the 
United  States,  the  sewage  system  is  in  the  hands 
of  private  companies,  being  managed  by  them  on 
commercial  principles.  No  one  would  now  defend 
such  a  condition  of  things,  for  Socialists  and 
individualists  would  condemn  it  equally  strongly. 
But  many  persons,  if  asked  why  they  condemn 
it,  would  reply  that  they  hold  it  to  be  wrong  to 
allow  any  service  which  is  of  such  vital  import- 
ance to  the  community  to  be  made  a  source  of 
profit  by  private  individuals ;  and  this  answer  they 
would  give  without  perceiving  that  it  went  a  long 
way  towards  admitting  the  whole  case  in  favour 
of  Socialism.  Are  not  good  houses,  proper  clothes, 
and  cheap  food  of  vital  importance  to  the  com- 
munity? And  if  the  importance  to  the  com- 
munity be  the  test  on  which  the  choice  between 
municipal  and  private  trade  is  to  rest,  the  munici- 
palisation  of  all  the  industries  connected  with  the 
production  of  all  the  necessaries  of  life  must  be 
held  to  be  justifiable.  If  municipalisation  were 
carried  to  this  extent,  it  would  be  of  comparatively 
little  importance  whether  the  production  of  luxuries 
were  or  were  not  retained  in  private  hands. 

(2)  Moreover,  few  but  Socialists  of  an  extreme 

69 


70      ADVANTAGES  OF  MUNICIPAL  TRADE    [chap.  iv. 

type  wish  to  have  all  the  industries  connected 
with  the  sewage  systems  of  our  towns  placed  in 
public  hands.  The  work  of  the  engineer  and  of 
the  sanitary  inspector  should,  it  is  now  almost 
universally  admitted,  be  performed  by  public 
officials.  Some  hold  that  sewers  should  always 
be  built  by  contractors,  whilst  others  persistently 
advocate  the  direct  employment  of  labour  by 
the  municipality  for  this  work ;  in  other  words, 
the  question  whether  the  trade  of  the  bricklayer, 
the  mason,  and  the  labourer  should  or  should 
not  be  municipalised,  as  far  as  sewage  work  is 
concerned,  is  a  disputed  point.  None  but  advanced 
Socialists  would,  however,  object  to  the  bricks  used 
in  the  construction  of  the  sewers  being  made  by 
private  firms.  Thus  the  importance  to  the  public 
of  any  service  is  not  even  generally  held  to  afford 
any  criterion  by  which  it  can  be  decided  how  far 
the  municipalisation  of  that  service  is  advisable. 

(3)  Those,  therefore,  who  are  not  Socialists,  and 
who  condemn  the  public  ownership  of  bakeries, 
for  example,  whilst  advocating  the  public  owner- 
ship of  sewers,  if  they  are  to  remain  on  logical 
ground,  must  not  base  the  distinction  between  the 
two  cases  on  the  relative  utility  of  these  services 
to  the  public.  Those  who  are  not  Socialists  hold 
that  there  are  many  objections  to  the  public 
management  of  industries,  objections  which  will 
appear  incidentally  in  subsequent  chapters ;  and, 
holding  these  views,  they  must  in  each  case  find 
some  special  advantages  of  sufficient  weight  to 
outweigh  these  general  disadvantages  before  they 
can  advocate  the  municipalisation  of  any  industry. 
In  fact,  the  onus  of  proof,  according  to  our  views, 


CHAP.  IV.]  COMPETITION   AND   PRICES  71 

lies  with  those  who  would  abolish  the  private 
trader.  And  it  may  clear  the  ground  if  we 
consider  briefly  what  are  the  arguments  in  favour 
of  the  municipal  management  of  sewers  which  do 
not  apply  to  the  municipalisation  of  bakeries. 

(4)  The  case  against  Socialism  rests  mainly  on 
the  belief  that,  when  competition  is  permitted, 
the  power  which  the  consumer  has  of  changing 
his  baker,  for  example,  gives  him  the  best 
guarantee  practically  available  that  he  will  get 
his  bread  as  good  and  cheap  as  possible.  If  it 
could  be  proved  that  production  under  the  manage- 
ment of  elected  bodies  would  generally  be  better 
and  cheaper  than  production  by  private  trade,  this 
argument  would  be  destroyed ;  but  this,  as  will  be 
seen  in  a  subsequent  chapter,  is  most  improbable. 
But  with  regard  to  the  industries  described  as 
monopolies  in  the  preceding  chapter,  where  com- 
petition is  either  limited  or  impossible,  this  plea 
against  State  interference  has  but  httle  Aveight ; 
and,  as  we  have  seen,  either  municipalisation  or 
State  regulation  is  often  necessary.  Where  there 
is  no  competition,  the  private  owners  of  monopolies, 
if  free  to  do  so,  would  obviously  sell  theu'  goods 
at  the  price  which  would  bring  them  in  the 
greatest  net  profit ;  and  this  would,  as  a  rule, 
mean  higher  prices  and  smaller  suppUes  than  under 
a  condition  of  things  where  free  competition 
existed.  Without  competition  there  is,  in  fact,  no 
automatic  lowering  of  prices  to  the  lowest  level 
attainable ;  and,  when  this  is  the  case,  the  State 
must  step  in  and  undertake  the  duty  of  regulation. 
The  less  prices  are  affected  by  competition  the 
more   necessary   does   it   become   for   the    State  to 


72      ADVANTAGES  OF  MUNICIPAL  TRADE     [chap.  iv. 

act  in  this  manner.  In  the  case  of  the  private 
control  of  sewers,  when  the  monopoly  would  be 
practically  complete  because  the  householder  in 
towns  cannot  dispose  of  sewage  except  by  the 
means  thus  provided,  the  State  obviously  on  this 
ground  alone  must  either  exercise  the  most  rigid 
control  or  manage  the  work  itself. 

(5)  As  to  the  choice  between  the  alternatives 
of  management  and  control,  private  proprietors  are 
certain  to  consider  all  questions  connected  with 
their  trade  almost  solely  with  reference  to  the 
w^ay  in  which  their  profits  would  be  affected ;  and 
they  will  pay  hardly  any  attention  to  pubhc  health, 
morals,  order,  or  convenience,  especially  when  such 
attention  would  tend  to  diminish  their  profits. 
Councillors  will,  no  doubt,  also  consider  both  sides 
of  the  question ;  but,  where  the  case  requires  it, 
they  will  put  the  question  of  profit  out  of  con- 
sideration altogether  and  will  only  look  to  the 
other  questions  involved.  No  doubt  Local 
Authorities  can  obtain  the  most  complete  control 
over  an  undertaking  by  managing  it  themselves ; 
and  when,  as  in  the  case  of  sewers,  the  sanitary 
questions  involved  are  of  such  vital  importance  that 
it  is  wise  to  neglect  entirely  all  thoughts  of  profit, 
then  nmnicipal  management  is  frequently  better 
than  private  management. 

(C)  Another  important  point  to  be  held  in  view 
is  the  practicability  of  State  regulation  of  private 
trade,  and  this  largely  depends  on  the  ease  with 
which  the  price  to  be  charged  to  the  consumer  can 
be  estimated.  With  gas,  for  example,  there  is  no 
difficulty  in  estimating  the  exact  quantity  supplied 
to  each  householder,  and  both  its  quahty  and  the 


CHAP.  IV.]  ESTIMATION   OF   COST  73 

cost  of  its  production  can  be  estimated  without,  at 
all  events,  any  large  percentage  of  error.  Hence  the 
price  which  should  be  paid  by  the  consumer  can  be 
determined  with  fair  accuracy,  and  a  schedule  of 
prices  can  be  set  forth  in  the  concessions  granted 
to  gas  companies.  But  with  sewage  works,  on  the 
other  hand,  it  would  be  very  difficult  to  ascertain 
by  inspection  whether  the  service  was  being  effec- 
tively performed,  what  it  was  costing,  and  how  the 
cost  should  be  shared  amongst  the  householders 
benefited ;  and  it  would  be  impossible  for  a  muni- 
cipality to  agree  to  pay  a  private  proprietor  by  the 
results  in  such  a  manner  as  to  ensure  the  work 
being  well  done.  No  doubt,  under  a  system  of 
municipal  trading,  the  question  of  inspection  also 
presents  great  difficulties ;  but,  at  all  events,  there 
ought  to  be  no  temptation  in  this  case  to  make  a 
profit  by  doing  bad  work.  Thus  the  difficulty  in 
estimating  the  cost  of  the  work  is  certainly  one 
of  the  reasons  why  the  municipalisation  of  gas  is 
a  far  less  pressing  need  than  the  municipaUsation 
of  sewage. 

(7)  Thus,  in  cases  where  municipalisation  is 
generally  held  to  be  necessary,  it  appears  that  there 
are  three  conditions  usually  fulfilled.  The  enter- 
prise is  one  which  would  be  a  complete  monopoly 
were  it  in  private  hands,  the  services  rendered  are 
of  great  importance  to  the  community  at  large, 
and  the  fair  price  to  be  paid  for  the  work  performed 
is  not  readily  estimated  in  advance.  We  reject  tlie 
private  control  of  sewers,  not  only  because  of  the 
vital  importance  of  that  service  to  the  public,  but 
also  because  the  payment  of  an  adequate  price  to  a 
private  proprietor  would  not  be  an  efficient  method 


7i      ADVANTAGES  OF  MUNICIPAL  TRADE     [chap.  rv. 

of  securing  a  thoroughly  good  system,  however 
carefully  tlic  position  might  be  safeguarded  by  law. 
As  to  the  municipalisation  of  other  industries,  before 
the  case  m  favour  of  such  a  step  can  be  established, 
it  is  necessary  to  consider  how  far  the  undoubted 
advantages  of  municipal  trading,  where  public 
interests  are  concerned,  are  outbalanced  by  the 
disad\antages  always  accompanying  State  manage- 
ment, and  how  far  the  evils  resulting  from  private 
trade  can  be  obviated  by  State  control.  This 
enquuy  is  necessary ;  but  no  one  now  denies  that 
the  balance  tells  in  favour  of  municipal  manage- 
ment in  many  cases. 

(8)  It  is  to  be  observed,  moreover,  that  other 
troubles  besides  those  suggested  above  may  arise 
from  private  management  when  the  price  and  the 
benefits  received  do  not  go  hand  in  hand.  In  the 
case  of  liquor,  for  example,  the  danger  of  unregulated 
trade  is  the  stimulus  to  consumption  and  not  the 
restriction  of  supplies,  and  municipalisation  has  been 
advocated  on  the  ground  that  drinking  might  thus 
be  diminished.  This  subject  is  too  wide  and  too 
special  to  be  discussed  here,  and  I  must  content 
myself  with  saying  that,  though  some  such  reform 
would,  I  believe,  be  advisable,  the  danger  of 
corruption  makes  it  highly  inexpedient  to  place  the 
control  of  many  public-houses  in  the  hands  of 
Municipal  Councils.  A  somewhat  similar  argument 
may  in  certain  circumstances  justify  the  establish- 
ment of  municipal  pawnshops ;  for,  in  the  absence 
of  private  proprietors,  thieves  would  be  less  sheltered, 
and  police  supervision  would  be  facilitated.  Then, 
again,  price,  where  trade  is  free,  depends  on 
what   the   consumer   is  willing   to   pay ;  and,  if  he 


CHAP.  IV.]  BATHS   AND   HARBOURS  75 

does  not  recognise  the  benefit  to  himself  of  the 
service  proposed  to  be  rendered,  he  will  not  pay 
the  price  necessary  to  induce  the  private  proprietor 
to  perform  the  work.  Baths  would  be  but  little 
used  in  many  locahties  if  the  bathers  had  to  pay 
the  full  cost,  and  it  may  be  wise  for  a  municipality 
to  run  bathing  establishments  at  a  loss  in  order  to 
promote  cleanliness.  It  is  true  that  sorriewhat 
similar  results  might  be  obtained  by  giving  bounties 
to  the  private  proprietors  of  baths;  but  such  bounties 
are  always  somewhat  objectionable.  Public  baths 
are  often,  therefore,  a  most  legitimate  object  for 
municipal  enterprise :  ^  but,  when  bathing  estabUsh- 
ments  are  erected  by  municipalities  to  attract  visitors 
to  the  locality,  a  totally  different  set  of  considerations 
arise. 

(9)  In  the  case  of  a  harbour,  though  the  whole  of 
the  inhabitants  in  its  neighbourhood  will  probably 
be  beneficially  affected  by  its  construction,  it  is, 
nevertheless,  impossible  for  a  private  company  to 
obtain  any  return  directly  from  all  of  them  for  ren- 
dering them  such  a  service.  It  may,  moreover,  be 
difficult  for  a  company  to  throw  the  whole  cost  on 
the  shippers  without  driving  away  the  shipping  to 
other  ports ;  in  which  case  private  enterprise  cannot 
succeed.  For  this  reason,  harboins  have  often  been 
largely  subsidised  or  actually  built  by  the  State, 
and  the  necessity  for  such  action  has  been,  no 
doubt,  especially  felt  where  the  enterprise  was  of 
such  magnitude  as  to  alarm  private  capitalists.  The 
management,  in  these  circimistances,  naturally  passed, 
partially  or  wholly,  into  the  hands  of  elected  bodies. 
This   is  as  it   should   be ;   but   the  arguments   here 

1  M.T.R.,  Q.  2262. 


76      ADVANTAGES  OF  MTJNICirAL  TRADE     [chap.  iv. 

suggested  in  favour  of  the  construction  and  main- 
tenance of  harbours  by  any  pubhc  body  do  not 
necessarily  apply  to  the  purchase  of  existing  private 
harbours  by  Local  Authorities.  A  harbour  in 
private  hands  may  be  a  very  complete  monopoly, 
and,  where  this  is  the  case,  the  management  must 
be  subject  to  control,  a  condition  of  things  which 
may  or  may  not  be  preferable  to  municipal- 
isation. 

(10)  As  to  markets,  cemeteries,  and  slaughter- 
houses, it  is  doubtful  if  they  should  be  included  in 
a  work  on  Municipal  Trade.  But,  however  classed, 
their  existence  as  municipal  enterprises  is  justified 
for  mucli  the  same  reasons  as  those  given  in  the 
case  of  baths  and  harbours.  Markets  can  often  be 
more  easily  established  by  municipalities  than  by 
private  individuals.  Markets  should  be  concentrated 
for  the  convenience  of  the  public,  and,  if  thus 
concentrated  and  in  private  hands,  they  are  apt  to 
become  monopolies.  Thus  municipalisation  is  often 
advisable;  and,  if  markets  become  public  institutions, 
objection  can  hardly  be  taken  to  their  being  kept 
up  to  the  requirements  of  the  times  by  the  addition 
of  cold  air  storage  for  meat  and  other  modern 
improvements.  As  to  cemeteries,  the  proper  biu'ial 
of  the  dead  must  be  enforced,  and  enforced  without 
the  least  delay,  and  the  public  must  defray  the  cost 
when  it  is  not  forthcoming  from  the  relatives.  The 
prospective  growth  of  towns  makes  it  necessary  for 
the  Local  Authorities  concerned  to  spend  large 
sums  in  the  purchase  of  land  for  which  no  return 
can  be  received  for  years,  and,  public  cemeteries, 
thougli  costly,  are  practically  a  necessity.  As  to 
slaughter-houses,   both    in    the    interests    of    public 


CHAP.  IV.]  DIRECT   EMPLOYMENT  77 

health,  and  to  prevent  cruelty  to  animals,  they 
should  not  exist  as  small  and  scattered  institutions. 
Concentration  would  seldom,  if  ever,  be  brought 
about  by  private  proprietors  with  a  view  to  their 
own  interests,  and  the  establishment  of  municipal 
abattoirs  often  produces  beneficial  results. 

(11)  The  foregoing  discussion  on  the  various 
services  which  may  often  with  advantage  be 
municipalised,  and  the  following  remarks  on  water- 
works, relate  only  to  the  effect  of  the  actual 
management  by  Local  Authorities.  The  question 
of  the  direct  employment  of  labour  on  the  con- 
struction of  these  and  other  works  opens  up  totally 
different  considerations.  Where  work  is  let  out  to 
contract,  the  contractor  has  to  make  a  profit,  and 
to  employ  foremen  to  superintend  the  work,  whilst 
the  municipality  is  paying  superintendents  of  its 
ovm.  Obviously,  therefore,  it  is  often  j^ossible  by 
the  direct  labour  system  to  save  some  of  the  con- 
tractor's profit  or  to  spend  less  in  superintendence. 
Such  a  saving  is  most  likely  to  be  practicable 
when  the  work  is  scattered,  and  when  the  cost  of 
superintendence  forms  a  comparatively  large  per- 
centage of  the  total  expenditure,  as  in  the  case 
of  street-cleaning.  In  sewage  works,  where  tlie 
building  is  quickly  covered  up  and  hidden,  the 
difficulty  of  superintendence  is  also  great ;  and  here 
also  the  direct  labour  system  is  widely  advocated 
and  frequently  adopted.  As  to  the  quality  of  the 
work  thus  performed,  much  has  been  written  on 
both  sides  in  this  controversy,  but  probably  the 
Report  of  the  Massachusetts  Board  of  Investigation 
that  '*  city  work  is  better  or  at  least  as  good  as 
"  that  done  by  contract "  may  be  accepted  as  being 


78      ADVANTAGES  OF  MUNICIPAL  TRADE     [chap.  n-. 

on  the  whole  accurate.^  The  less  economy  is 
studied  the  more  easy  is  it  to  get  good  work  done  ; 
and  it  is  as  to  the  cost  that  direct  labour  shows 
its  weak  side.  Professor  J.  R.  Commons,  whilst 
advocating  this  system,  and  bringing  forward  many 
fiicts  in  its  favour,  tells  us  that  "in  Massachusetts 
"  the  legal  rate  for  unskilled  labour  on  public  works 
"  is  $2*00  per  day  of  nine  hours,  whereas  contractors 
"employ  the  same  labour  for  90  cents,  to  $1*25  per 
"  day  of  ten  hours.  Consequently,"  he  adds,  "  in 
"  that  State  public  authorities  are  at  a  heavy  dis- 
"  advantage."^  This  may  be  a  somewhat  exceptional 
case.  But  direct  labour  will  always  be  paid  at  a 
higher  rate  for  the  work  done  than  contract  labour ; 
and  this  increase  of  cost  must  be  set  against  the 
possible  saving  of  contractors'  profits  and  the 
problematical  superiority  in  quality.  The  corrupt- 
ing effect  of  the  direct  employment  of  labour  on 
municipal  administration  to  be  discussed  in  the  next 
chapter,  and  the  fact  that  in  many  cases  "partisan 
"  politics  affects  the  quality  of  city  work  "  ^  must  also 
be  weighed  in  the  balance.  My  own  impvession  is 
that  in  the  case  of  sewers,  with  a  good  municipal 
engineer,  sufficiently  good  work  can  be  done  under 
the  contract  system  at  a  cheaper  rate ;  and  that, 
with  more  easily  inspected  work,  the  balance  is 
even  more  decidedly  against  the  direct  employment 
system. 

(12)  The  construction  and  maintenance  of  roads 
is   now    certainly    not    regarded   as   an   instance   of 

*  "  Massachusetts  Report  on  the  Unemployed  :  Public  Works,"  p.  82, 
quoted  by  Prof.  J,  R.  Comraous  in  "  The  Day  Labour  and  Contract 
System,"  Yale  Reviexc,  vol.  v.  p.  430. 

2  lUd.,  p.  431. 

'  Ibid.,  p.  430. 


CHAP.  IV.]  CARE   OF  THE   STREETS  79 

municipal  trading ;  though  it  is  in  fact  but  few 
years  since  turnpike  roads  were  discontinued.  These 
roads  were  made  by  private  capital,  the  right  to 
levy  a  toll  being  the  security  on  which  the  money 
was  raised  ;  and  the  management  was  usually  placed 
in  the  hands  of  trustees,  partly  pubUc  and  partly 
private.  This  system  was  abolished,  not  because 
the  roads  were  as  a  rule  badly  kept,  nor  because 
of  the  expense ;  but  mainly  because  the  levying 
of  a  toll  was  found  to  be  an  inconvenient  and 
inequitable  method  of  paying  for  the  benefits 
received.  The  difficulties  attendant  on  any  system 
of  private  road-making  in  towns  have  made  this 
work  a  public  duty  from  time  immemorial.  JNIany 
of  the  circumstances  connected  with  this  service 
are  favourable  to  the  direct  employment  of  labour. 
(13)  The  care  of  streets  is  now,  therefore,  neces- 
sarily placed  in  public  hands ;  and  a  plea  for  the 
municipalisation  of  many  industries  is  based  on  this 
fact.  The  managers  of  water- works,  gas-works,  and 
electric  lighting  works  must  have  the  right  of 
opening  roadways ;  gi-eat  inconvenience  will  be 
experienced  by  the  public,  so  it  is  urged,  if  more 
than  one  authority  possesses  any  such  rights ;  and 
consequently,  all  these  industries  should  be  managed 
by  highway  authorities  or  municipalities.  In  order 
to  avoid  so  large  an  extension  of  their  functions, 
it  has  been  suggested  that  Local  Authorities  should 
lay  the  pipes,  etc.,  under  the  streets,  leaving  all  the 
rest  of  the  business  connected  with  these  industries 
in  the  hands  of  private  companies  ;  and  no  doubt 
the  difficulties  arising  from  the  multiphcity  of 
the  authorities  interfering  with  the  roadways  would 
thus  be  obviated.     But  this  is  in  all  probabihty  an 


80      ADVANTAGES  OF  MUNICirAL  TRADE     [chap.  iv. 

impracticable  proposal ;  for  badly  laid  pipes  might 
cause  heavy  losses  through  leakages,  and  private 
proprietors  would  not  venture  on  any  enterprise  in 
which  such  losses  might  be  thrown  on  them  by  work- 
men over  whom  they  had  no  control.  Thus  the 
municipal  management  of  the  streets  undoubtedly 
affords  an  argument  in  favour  of  municipal  trading 
which  must  be  considered ;  for,  obviously,  it  would 
be  convenient  if  one  authority  only  dealt  with  all 
questions  connected  with  the  streets ;  and  the 
nuisance  arising  from  conflicting  authorities  has  been 
found  to  be  quite  intolerable  when  many  companies 
have  been  competing  in  the  same  roadway.  But 
when  only  one  private  company  is  allowed  to  supply 
the  same  goods  or  to  perform  the  same  service  in 
a  given  area,  the  inconvenience  is  not  necessarily 
really  serious ;  because  the  public  authorities,  if  they 
desire  to  do  so,  soon  find  a  way  of  working  har- 
moniously with  the  private  proprietors,  whose  interest 
it  certainly  is  to  be  on  good  terms  with  them. 
JNIoreover,  when  councillors  are  also  the  managers 
of  gas-works,  for  example,  they  are,  as  before 
remarked,  acting  in  a  dual  capacity ;  and,  if  they 
dwell  too  much  on  their  duties  as  gas  manufacturers, 
they  may  neglect  the  duty  they  have  to  perform 
of  seeing  that  the  public  are  as  little  inconvenienced 
as  possible  by  the  employees  of  the  gas-works. 
With  gas-works  in  private  hands,  this  latter  duty, 
being  the  main  obligation  of  the  Local  Authorities 
respecting  them,  is  unlikely  to  be  neglected.  It  has 
been  confidently  asserted  that,  for  this  reason  and 
because  private  proprietors  generally  contrive  to  get 
their  work  more  rapidly  performed  than  municipalities, 
the  public   are   in  reahty  less   inconvenienced  from 


CHAP.  IV.]  TRAMWAYS  81 

broken-up  streets  in  towns  where  the  gas-works 
are  owned  by  private  companies  than  where  they 
are  municipahsed.^  JNIore  unprejudiced  evidence  is 
required  than  we  possess  to  settle  this  point ;  but 
it  appears  to  me  that  the  balance  is  sufficiently 
even  to  make  it  safe  to  assert  that  this  is  not  a 
strong  argument  in  favour  of  the  municipahsation 
of  water,  gas,  electricity,  and  telephones. 

(14)  The  private  rights  now  usually  exercised 
by  tramway  companies  do,  however,  without  doubt 
give  rise  to  more  or  less  serious  inconvenience ;  for 
highway  authorities  and  private  tramway  companies 
both  have  to  work  on  the  surface,  and  they  are, 
therefore,  more  likely  to  come  into  collision  with 
each  other  than  when,  as  in  the  case  of  gas-works, 
the  men  employed  by  the  public  authoritity  are 
working  mainly  on  the  surface  and  the  private 
workmen  mainly  below  it.  Corporations,  it  is  true, 
have  the  whip  hand  according  to  the  law ;  but  it 
is  nevertheless  not  always  easy  for  them  to  make 
private  proprietors  do  what  is  necessary.  In  St 
Helens,  for  example,  "  it  was  found  that  the  roads 
"  had  got  into  such  a  miserable  state  that  the  company, 
"  not  being  a  strong  one  financially,  the  only  way  of 
"  putting  the  thing  on  a  proper  basis  was  to  buy  them 
"  out."  ^  American  experience  confii-ms  this  view ; 
for  it  has  been  reported  that  "  whene\  er  there  was 
"  divided  responsibility  in  the  care  or  construction  of 
"streets,  there  was  contention."^  Sometimes  it  is 
desirable,  for  the  public  safety  or  for  other  reasons, 
to  make  minor  alterations  in  the  tram-lines,  and  all 
such    proceedings    are    far    easier    if    the    highway 

1  M.T.R.,  Qs.  3268,  3402.  ^  j/^^-^,^  q.  3047. 

'^  "  Report  of  Special  Committee,  Cities  and  Street  Railways,"  Massa- 
chusetts, 1898,  p.  111. 

F 


82      xVDVANTAGES  OF  MUXICirAL  TllADE     [chap.  iv. 

authority  has  the  sole  right  of  deahng  with  the 
surface  of  the  streets.^  'Die  widening  of  streets 
and  the  construction  of  tramways  must  often  go 
hand  in  hand,  and  Corporations  have  spent  hirge 
sums  on  such  widenings  when  constructing  tramways 
themselves ;  sums  which,  it  is  suggested,  they  would 
not  have  spent  if  the  tram-lines  had  been  con- 
structed by  private  companies.-  AMiich  way  this 
latter  argument  tells  may  well  be  doubted ;  for  if 
any  widening,  taking  all  things  into  consideration, 
was  worth  the  money  spent  on  it,  it  should  have 
been  undertaken  in  all  circumstances ;  whereas,  if 
it  was  not  worth  it,  the  private  control  of  the  tram- 
ways might  have  saved  the  city  in  question  from 
unnecessary  expenditure.  However  this  may  be, 
the  plan  least  likely  to  give  rise  to  friction  woidd, 
no  doubt,  be  for  one  authority  only  to  prepare  the 
street  surface  for  traffic ;  and,  as  the  Corporation 
must  of  necessity  take  care  of  the  bulk  of  the 
street  surface,  it  seems  reasonable  that  they  should 
take  care  of  the  whole  surface,  tram-Hnes  and  all. 

(15)  But  this  argument  in  favour  of  tramway 
lines  being  laid  and  repaired  by  Local  Authorities 
does  not  necessarily  tell  in  favour  of  the  municipal 
management  of  the  whole  of  the  tramway  business ; 
for,  in  the  above-mentioned  case  of  St  Helens,  the 
Corporation,  after  having  bought  out  the  company 
and  after  having  put  the  roadway  in  good  order, 
in  reality  leased  the  right  to  run  cars  on  the 
tram-lines  to  another  company.  It  may  be  urged 
that  a  company  would  not  readily  undertake  to  run 
cars  on  lines  laid  by  a  municipality  because  of  the 
possibility  of  accidents  for  which  they  would  not  be 

1  M.T.R.,  Q.  1998.  2  Ibid.,  Q.  3050. 


CHAP.  IV.]  TRAMWAYS  83 

to  blame.     But  a  Local  Authority  would  be  liable 
for  the  results  of  its  own  negligence  with  regard  to 
the  tram-lines,  just  as  it  is  now  liable  in  the  case  of 
omnibus  accidents  arising  from  its   negligence   with 
regard  to  the  roadway ;  and  experience  proves  that, 
with  suitable  regulations,  tramway  companies  are  as 
ready  to  run   cars   on    municipal   tram-lines   as   are 
omnibus   companies    to   run    vehicles   on   municipal 
roadways.      The   company   might   supply   the   rails, 
and  might  perhaps  be  responsible  for  reporting  when 
they  should  be  renewed,  thus  making  the  responsi- 
bility  of  municipalities    as   limited   and   as   definite 
as  possible.     The  right  to  run  trams  is  usually  more 
of  the  nature  of  a  monopoly  than  the  right  to  run 
omnibuses ;     and,    although    this     difference    might 
possibly  justify  the  municipalisation  of  the  one  and 
not  that  of  the  other,  the  public   ownership  of  the 
streets     can     hardly     be     said    to     necessitate    any 
difference  in  the   treatment   of  the   two    industries. 
Omnibus  companies  in  Paris  are   subject   to  special 
taxation,  and  tramway  companies  running  on  muni- 
cipal lines  might,  in  the  same  way,  be  made  to  pay 
a  special  tax  or  rent.     Both  would  in  these  circum- 
stances  receive   and  pay   for  the   benefits   resulting 
from   municipal    expenditure.     In   Germany,   where 
municipal  management  is  not  regarded  with  fa\'our, 
the  "  settled  policy  is  to  have  everything  pertaining 
"to  the  street  and  pavement  pass  into  the  owner- 
"  ship  of  the  municipality  at  some  not  remote  future 
"  time."  ^    The  "  system  under  which  the  municipality 
"  both  owns  and   controls  the  wliole  surface    of   itjf 
"  streets,  whether  paved  with  other  material  or  with 

*  "Report  of  Special  Committee,  Cities  and  Street  Railways,"  Massa- 
chusetts, 1898,  p.  30. 


84      ADVANTAGES  OF  MUNICIPAL  TRADE     [chaf.  iv. 

"  iron,  and  leases  to  a  private  company  the  right  to 
"  run  vehicles  over  prescribed  routes  on  tracks  therein 
"  specially  provided,"  is  "  better  and  more  logical " 
than  the  system  under  which  private  proprietors  of 
tramways  are  responsible  for  the  care  of  only  part 
of  the  roadway ;  and  nothing  which  has  been  said 
thus  far  tends  to  prove  that  this  is  not  the  best 
system  which  could  be  adopted. ^ 

(16)  It  will  be  convenient  here  to  brush  aside  one 
or  two  arguments  which  have  been  brought  forward 
for  and  against  the  municipalisation  of  tramways. 
The  same  fare  is  usually  charged  in  the  United 
States  whether  the  passenger  travels  for  a  short  or 
for  a  long  distance,  and,  consequently,  the  long 
distance  journeys  into  the  suburbs  are  cheap.  The 
congestion  in  the  centre  of  large  cities  is,  it  is 
said,  thus  relieved  by  these  privately  managed 
tramways  more  effectively  than  by  means  of  the 
municipal  tramways  in  the  United  Kingdom — those 
at  Glasgow,  for  example,  where  the  short  journeys 
are  cheaper  and  the  long  journeys  dearer.  JNIuch 
might  be  ^vritten  both  as  to  the  facts  of  the  case, 
and  as  to  the  conclusions  to  be  drawn  from  them ; 
but,  as  the  difference  between  the  two  systems 
is  mainly  due  to  differences  between  the  customs 
and  circumstances  of  the  two  countries,  and  not 
to  any  inherent  differences  between  public  and 
private  management,  there  is  no  necessity  to  discuss 
the  subject  here.  On  the  other  hand,  it  has  been 
urged  that  the  municipalisation  of  tramways  would 
be  "an  aid  to  the  wise  distribution  of  population 
"  throughout  the  town's  area " ;  ^  and,  in  support  of 

^  "  Report  of  Special  Committee,  Cities  and  Street  Railways,"  Massa- 
clmsetts,  1898,  p.  29. 

^  "  Municipal  Government  in  Great  Britain,"  Albert  Shaw,  p.  206. 


CHAP.  IV.]  TRAMWAYS  85 

such  a  view,  it  has  been  stated  that  municipaUties 
would  push  their  hues  into  outlying  districts  more 
rapidly  than  pri^'ate  companies.  Reasons  will, 
however,  be  given  in  a  subsequent  chapter  for 
believing  that  municipal  trading  would,  as  a  rule, 
have  the  opposite  effect ;  for,  in  comparison  with 
what  would  be  found  under  private  management, 
such  extensions  would  for  various  reasons  be  less 
probable.  This  is  no  doubt  denied ;  and  the 
advocates  of  jNIunicipal  Trade  have  replied  that 
Local  Authorities  should  be  and  would  be  more 
willing  than  private  companies  to  face  the  risks 
involved  in  nmning  tramways  into  poor  outlying 
districts ;  a  merit  of  their  administration  which 
bears  a  different  aspect  when  interpreted  as  an 
assertion  that  Town  Councils  are  more  willing  to 
speculate  with  the  ratepayers'  money  than  are  the 
directors  of  companies  to  speculate  with  their  share- 
holders' contributions.  The  prospect  of  making  a 
profit  is  generally  the  best  method  of  judging  the 
needs  of  the  pubUc  in  matters  of  locomotion ; 
and  such  prospective  profits  will  usually  be  most 
accurately  estimated  by  private  proprietors.  Thus, 
this  argument  tells  against,  and  not  in  favour  of 
the  initiation  of  tramway  enterprises  by  Local 
Authorities.  Even  if  I  am  right  in  thinking  that 
it  would  generally  be  best  for  municipalities  to  deal 
with  the  whole  street  surface,  it  would  not  follow 
that  it  would  be  wise  for  them  to  lay  down  any  new 
lines  until  a  responsible  company  had  agreed  to  pay 
for  a  part  or  for  all  of  the  cost  of  construction, 
according  to  an  agreed  specification,  and  to  take  a 
lease  of  the  running  rights  for  a  number  of  years. ^ 

1  M.T.R.,  Qs.  2113  and  4226. 


86      ADVANTAGES  OF  MUNICIPAL  l^RADE     [chap.  iv. 

(17)  We  have,  liowever,  been  wandering  some- 
what far  from  the  point,  namely,  the  special  advan- 
tages of  JNIunicipal  Trade  which  are  felt  with  regard 
to  monopolies  of  great  public  importance  when  the 
cost  of  the  service  is  not  easily  estimated.  The 
business  of  supplying  pure  water  is  certainly  covered 
by  this  description.  Its  public  importance  is 
unquestionable,  and  it  is,  therefore,  an  object  for 
which  it  is  justifiable  to  face  considerable  risk. 
In  the  centre  of  large  towns  it  is  an  absolute 
monopoly,  and  private  proprietors,  if  uncontrolled, 
would  be  enabled  to  charge  rates  entirely  in- 
dependent of  the  cost  of  supply.  But  the  most 
important  point  is  that  the  cost  of  supplying  a 
certain  quantity  of  water  in  one  locality  is  no 
criterion  of  the  cost  of  supplying  either  the  same 
amount  in  another  locality  or  an  increased  amount 
in  the  same  locality.  In  granting  concessions  to 
private  companies  it  is  therefore  impossible  to 
include  clauses  regulating  the  price  to  be  paid 
for  water  in  all  possible  contingencies.  The  best 
that  can  be  done,  though  it  seldom  is  done,  is 
to  insert  clauses  giving  the  Local  Authorities 
concerned  the  right  to  purchase  the  works  at  a  fair 
valuation ;  a  subject  to  be  discussed  in  chap.  xiii. 
In  the  absence  of  such  purchase  clauses,  and  to 
a  less  extent  when  they  have  been  inserted,  I^ocal 
Authorities  may  find  themselves  much  at  the 
mercy  of  water  companies  when  any  change 
takes  place  in  the  circumstances  affecting  the 
demand  or  the  supply.  For  example,  we  hear 
of  a  "  town  in  the  north  of  England "  where 
the  water  supplied  by  a  company  was  "  extremely 
"  hard,    and    contained    a    considerable    amount   of 


CHAP.  IV.]  WATER-WORKS  87 

'•  salt."  No  doubt,  when  the  company  was  formed, 
less  attention  was  paid  to  such  matters,  and  the 
quahty  of  the  water  was  not  questioned.  The 
company  was  paying  "good  dividends,"  and  it 
appears  to  have  resisted  the  pressure  of  the  Town 
Council,  which  was,  no  doubt,  exercised  with  the 
view  of  forcing  steps  to  be  taken  which  would 
have  had  the  effect  of  lowering  these  dividends 
without  giving  what  appeared  to  the  shareholders 
adequate  compensation.  "  After  very  great  exer- 
"tions,  the  Council  wxre  able  to  prevent  the  water 
"  company  from  supplying  from  a  source  contami- 
"nated  with  salt;  but  cutting  off  this  supply 
"caused  the  pressure  in  the  mains  to  fall  far 
"below  what  it  should  have  been."^  Again,  in 
such  a  case  as  the  old  private  supply  of  water 
for  Birmingham  from  neighbouring  sources,  it  was 
probably  sound  commercial  instinct  which  led  the 
directors  of  the  companies  concerned  to  hesitate 
to  embark  on  such  a  scheme  as  that  which  is  now 
being  completed  by  the  Corporation ;  and  it  may  be 
safely  asserted  that  a  private  water  supply  would 
never  have  been  obtained  from  Wales  because  there 
would  have  been  "  no  profit "  in  such  an  enterprise 
under  any  concession  which  would  have  been  granted 
to  private  proprietors.  When,  as  in  this  case,  a 
new  supply  would  be  more  costly  than  the  old 
one,  the  only  way  to  induce  an  existing  company 
to  develop  this  new  supply  would  be  to  allow  a 
higher  water  rate  to  be  charged  for  all  supplies, 
old  and  new ;  and,  even  if  the  company  took  no 
advantage  of  its  commanding  position,  and  merely 
proposed  a  reasonable  addition  to  the  water  rate, 
^  "Traction  and  Transmission,"  Joseph  A.  JeckeU,  April  1902,  p.  238. 


88      AD\  AXTAGES  OF  MUNICIPAL  TRADE     [chap.  iv. 

it  would  be  very  difficult  for  the  Local  Authority 
to  convince  themselves  that  the  addition  proposed 
was  reasonable.  Probably  even  a  greater  difficulty 
would  be  to  obtain  the  popular  assent  to  any 
increase  in  the  rate  of  payment  to  private  pro- 
prietors. Other  illustrations  might  no  doubt  be 
given  of  the  difficulties  concerning  water  supplies 
which  must  almost  inevitably  arise  between  directors, 
bound  to  make  the  interests  of  their  shareholders 
their  first  consideration,  and  Local  Authorities  and 
the  public,  who  are  often  unable  to  judge  of  the 
fair  price  to  be  paid  as  compensation  for  new 
requirements. 

(18)  As  regards  gas  and  electrical  works,  a 
knowledge  of  the  cost  of  an  existing  supply  will 
enable  an  expert  to  form  a  very  fairly  accurate 
estimate  of  the  cost  of  an  additional  supply ; 
and,  as  compared  with  water-works,  difficulties 
are  therefore  not  so  likely  to  arise,  and  less  is  to 
be  gained  by  the  municipalisation  of  these  under- 
takings. The  cost  of  producing  goods  of  almost 
every  description  no  doubt  varies  considerably 
during  the  course  of  years  from  causes  which 
cannot  be  foreseen.  The  concessions  granted  to 
electrical  works  in  England  only  confer  rights 
for  limited  periods ;  but,  as  regards  gas-works, 
these  bargains  between  the  public  and  the  private 
proprietors  have  imquestionably  been  made  with- 
out sufficient  regard  to  these  probable  changes, 
and  they  are  apt  in  time  to  become  unsuitable  to 
the  new  conditions.  'J'liis  is  objectionable ;  but 
under  different  regulations  the  municipalisation 
of  gas-works  would  offer  less  advantage  than  it 
does  at  present. 


CHAP.  IV.]  COPIOUSNESS   OF   SUPPLIES  89 

(19)  It  has  been  urged  with  regard  to  water 
that  it  is  "  important  for  the  health  of  tlie  people 
"  that  the  supply  should  be  in  the  hands  of  a 
"  body  which  can  have  no  motive  for  restricting 
"  it."  ^  This  is  a  sound  argument  in  favour  of  muni- 
cipal water-works  ;  but  it  is  so  only  because  of  the 
peculiar  circumstances  whicli  make  it  inadvisable  to 
sell  water  for  household  purposes  by  quantity.  If 
the  water  rate  depended  on  the  quantity  consumed, 
economy  would  result  in  dirt  and  ill-health  in 
poor  districts.  It  is,  in  fact,  generally  held  to 
be  right  both  to  induce  the  lowest  stratum  of 
society  to  use  more  water,  and  to  force  tliem  to 
pay  more  for  it,  than  would  be  the  case  if  the 
trade  were  regulated  by  the  ordinary  economic 
laws  of  demand  and  supply.  Any  body,  public 
or  private,  supplying  water  must  have  a  pecuniary 
motive  for  restricting  tliat  supply  if  their  receipts 
are  independent  of  the  quantity  consumed ;  and 
the  above-mentioned  undesirable  tendencies  will 
always  be  more  or  less  felt.  It  must,  however,  be 
admitted  that  the  actions  of  private  proprietors 
are  considerably  more  likely  to  be  influenced  by 
such  economical  motives  than  is  the  case  witli 
Local  .iVuthorities.  Companies  may  be  even 
more  anxious  tlian  corporations  to  supply  7nore 
houses,  but  they  will  not  be  so  willing  to  supply 
more  water  to  each  house.  The  interests  of  the 
shareholders  and  tlie  interests  of  the  public  must 
be  antagonistic  on  all  sucli  questions  as  those 
relating  to  the  size  of  house  cisterns,  and  the 
introduction  of  tlie  constant  supply  system,  'i'he 
fact    that  water   sliould    not    be    sold    by   (juantity 

1  "  The  State  in  its  relation  to  Trade,"  Lord  Farrer,  1883,  p.  94. 


90     ADVANTAGES  OF  MUNICIPAL  TRADE     [chap.  iv. 

affords   one   of  the   strongest   arguments   in  favour 
of  municipal  water  supplies. 

(20)  The  municipalisation  of  both  gas-works 
and  electrical  works  has  also  been  urged  on  the 
ground  that  the  quantities  sold  will  be  greater 
under  public  than  under  private  management, 
with  beneficial  results  as  far  as  public  health,  order, 
and  morality  are  concerned.  The  advantages 
arising  from  the  efficient  illumination  of  streets 
and  of  the  public  staircases  of  workmen's  dwellings 
are  obvious ;  and  the  proper  lighting  of  private 
dwellings  is  perhaps  even  more  important.  But, 
if  the  gas-works  are  in  private  hands,  Local 
Authorities  can  get  as  much  gas  for  public 
purposes  as  they  like  to  pay  for ;  though,  like 
private  purchasers,  the  dearer  the  gas  the  less 
they  will  buy.  If  municipalities  could  manage 
such  concerns  better  than  private  companies,  they 
would  be  able  to  supply  the  commodities  manu- 
factured at  less  cost  or  with  greater  convenience 
to  the  public ;  and  beneficial  effects  would  un- 
doubtedly be  experienced.  Then,  again,  if  the 
result  of  municipalisation  would  be  to  divert 
some  of  the  shareholders'  profits,  and  to  make 
them  fall  into  the  public  purse,  it  is  obvious 
that  this  would  enable  Local  Authorities  to 
reduce  prices  without  incurring  a  loss.  Both  of 
these  are  reasons  which  have  been  given  for 
believing  that  prices  will  be  lower  and 
supplies  more  copious  under  public  management. 
Putting  these  arguments  aside  for  future  con- 
sideration (see  chaps,  vi.  and  vii.),  it  only  remains 
here  to  point  out  that  it  is  certainly  possible  for 
Local  Authorities   owning  gas-works,  for   example, 


CHAP.  IV.]  COPIOUSNESS   OF   SUPPLIES  91 

to  stimulate  sales  by  lowering  prices  and  to  make 
up  for  the  deficiency  thus  caused  by  additional 
taxation.  But  if  this  additional  taxation  were 
levied  whilst  the  gas-works  remained  in  private 
hands,  and  if  the  proceeds  were  given  as  a  bonus 
to  the  consumers  of  gas,  precisely  the  same  stimulus 
could  be  given  at  no  greater  cost.  Such  a  lower- 
ing of  the  price  of  municipal  gas  supplies  would 
in  fact  be  a  concealed  bounty,  which  hardly  any- 
one would  now  defend.  There  may,  for  example, 
be  less  risk  of  fire  with  gas  than  with  oil  lamps ; 
but  it  would  indeed  be  grand-motherly  legislation 
to  attempt  to  lessen  such  risks  by  giving  a  bounty 
to  gas  consumers  and  refusing  to  give  a  bounty 
to  oil  consumers.^  Or  again,  to  allude  to  the 
argument  in  favour  of  municipal  tramways  already 
discussed,  when  we  hear  of  a  Corporation  buying 
land  at  a  considerable  distance  from  the  centre  of 
the  city,  constructing  a  tramway  to  it  even 
though  the  district  was  one  "that  no  tramway 
"  company  would  go  to  because  it  would  not  pay," 
and  building  cottages  thereon,  the  wisdom  of  this 
proceeding  begins  to  appear  doubtful  when  we 
perceive  that  it  amounts  to  giving  a  bounty  to 
certain  individuals  to  induce  them  to  reside  in  a 
locality  they  would  not  otherwise  inhabit.^  To 
lower  prices  at  the  expense  of  the  ratepayer 
cannot  be  right ;  and  if  the  arguments  in  favour 
of  Municipal  Trade  which  are  based  on  the 
copiousness  of  the  supplies  of  gas  and  of  other 
goods  sold  by  quantity  are  sound,  it  must  be 
either  because   municipal   management  is   generally 

1  M.T.R.,  Q.  2671. 

2  Ibid.,  Q.  2416. 


92      ADVANTAGES  OF  MUNICIPAL  TRADE     [chap.  iv. 

superior  to  private  management,  or  because  muni- 
cipalisation  presents  some  inlierent  financial 
advantages ;  in  fact,  it  must  be  because  of  reasons 
which  would  tell  in  favour  of  the  municipalisation 
of  almost  everything,  and  which  cannot,  as  we 
shall  see,  be  sustained. 

(21)  Thus  we  see  that,  with  enterprises 
imder  private  management,  financial  questions 
may  become  too  prominent ;  for,  with  a  pri^'ate 
company,  the  earning  of  a  dividend  for  the  share- 
holders must  be  the  main  consideration  held  in 
view  by  the  directors.  When  competition  is  free, 
the  consumer  will  get  the  best  possible  value  for 
his  money  from  the  unrestricted  pri^'ate  trader : 
but,  in  the  case  of  monopolies  in  private  hands, 
the  State  must  regulate  prices,  and,  rather  than 
attempt  any  such  regulation,  it  may  be  wiser  for 
a  municipality  to  manage  the  monopoly  itself. 
This  argument  for  municipalisation  tells  most 
strongly  when  the  cost  of  the  work  is  not  easily 
estimated,  and  when  questions  connected  with 
health,  public  order,  morality,  and  convenience 
are  concerned.  Thus  many  advantages  arise  from 
the  public  management  of  baths,  markets, 
cemeteries,  and  slaughter-houses.  The  case  for 
public  harbours  is  not  necessarily  so  strong,  and 
is  much  strongest  when  new  works  have  to  be 
initiated.  There  are  special  reasons  for  the  pubhc 
management  of  water-works ;  but,  in  this  and  in 
the  above-mentioned  industries,  the  considerations 
here  dealt  with  do  not  point  to  any  advantage 
from  the  direct  employment  of  labour  on  construc- 
tion, etc.  When  we  come  to  gas-works,  electric 
works,  telephones,  and  tramways  (except  as  regards 


CHAP.  IV.]  COPIOUSNESS   OF  SUPPLIES  93 

the  care  of  the  roadway),  the  case  in  favour  of 
JNIunicipal  Trade  becomes  far  more  feeble ;  and  the 
arguments  here  adduced  give  no  support  to  the 
municipahsation  of  competitive  industries. 


ADMINISTRATION    AND    CORRUrTION 

(1)  In  considering  the  general  effect  of  JNIunicipal 
Trade  on  local  administration,  we  find  here,  as 
elsewhere,  that  there  are  opposing  forces  at  work. 
Without  doubt  certain  beneficial  influences  are 
brought  into  play  by  entrusting  public  bodies  with 
trading  enterprises.  The  sense  of  ownership  gener- 
ally felt  by  citizens  when  they  see  large  works 
undertaken  by  a  body  directly  elected  by  themselves 
must  stimulate  their  interest  in  civic  affairs ;  and 
this  increase  in  their  interest  must  react  on  the 
elected  body,  and  thus  produce  beneficial  results. 
Any  increase  of  the  responsibility  tlu'own  on  any 
English  governing  body  produces  a  corresponding 
tendency  towards  increased  exertion  ;  and  municipal 
enterprise  will  in  this  manner  tend  to  raise  the  tone  of 
Municipal  Councils.  In  London  considerably  more 
than  half  the  voters  will  not,  as  a  rule,  even  take  the 
trouble  to  record  their  votes  at  by-elections,  and  it 
has  been  urged  that  they  would  be  aroused  from 
their  apathy  by  an  extension  of  municipal  enterprise. 
Altliough  many  may  doubt  the  wisdom  of  placing 
nuicli  reliance  on  the  possibihty  of  thus  increasing 
the  interest  of  the  public  in  local  affjiirs  in  the 
^Metropolis,  and  their  doubts  may  be  even  gi-eater 
in  the  case  of  smaller  towns,  yet  it  can  hardly   be 


CHAP,  v.]  SUFFRAGE   LAWS  95 

denied   that   Municipal    Trade    does    do   something 
towards  stimulating  municipal  activity. 

(2)  On  the  other  hand,  many  harmful  influences 
are  set  in  motion  by  the  public  management  of 
industries,  and  it  remains  to  be  considered  whether 
the  net  result  on  municipal  administration  is,  on 
the  whole,  beneficial  or  harmful.  Some  of  the 
subjects  here  dealt  with  are  of  comparatively  little 
importance ;  and  these  will  first  be  discussed.  But, 
in  discussing  them,  it  must  be  remembered  that 
all  the  weights,  big  or  small,  required  to  make  up 
a  given  total,  must  be  put  on  the  scales  before  we 
can  tell  whether  the  object  weighed  is  or  is  not 
over  weight. 

(3)  Anything  whatever  which  creates  a  sense 
of  injustice  or  discontent  amongst  citizens  has 
a  tendency  to  weaken  the  authority  of  the  adminis- 
trating body,  and  thus  to  produce  certain  harm- 
ful influences ;  and  this  is  true,  even  if  the 
acts  producing  the  discontent  are  really  just. 
Municipal  Trade  certainly  creates  a  sentiment  of 
dissatisfaction  with  the  existing  suffi'age  laws, 
which  were  framed  without  any  regard  to  this 
extension  of  the  functions  of  Local  Authorities. 
In  England,  and  in  most  democratic  countries,  the 
voting  power  of  the  individual  is  now  the  same 
whether  he  contributes  mucli  or  little  towards  the 
public  expenditure ;  and  this  condition  of  things 
is  defended  on  the  grounds  that  the  rich  suflcr 
as  little  or  even  less  than  the  poor  from  the 
taxation  imposed,  and  that,  as  the  maintenance 
of  law  and  order  is  the  main  function  of  a  govern- 
ment, all  are  equally  concerned  in  its  adminis- 
tration.    Again,   shareholders,    and    other   corporate 


%        ADMINISTRATION  AND  C()RRri»TI()N      [cnAP.  v. 

contributors,  have,  as  a  rule,  no  voting  power 
whatever,  a  condition  of  taxation  witliout  repre- 
sentation which  is  justified  on  the  ground  that,  if 
not  residing  in  the  phice,  sliareholders  are  not  con- 
cerned witli  the  primary  functions  of  the  local  repre- 
sentatives and  have  no  personal  knowledge  of  them. 
AMiether  these  arguments  would  or  would  not 
be  sufficient  to  justify  the  English  suffrage  laws, 
if  there  were  no  Municipal  Trade,  will  not  here 
be  discussed ;  but  certainly  they  are  illogical  where 
it  is  widely  undertaken.  In  many  cases  when 
money  is  raised  to  establish  municipal  industries, 
all  citizens  are  certainly  not  equally  concerned  in 
the  results ;  and  the  wider  the  extension  of  the 
field  of  municipal  enterprise,  the  more  probable 
will  it  be  that  some  of  the  undertakings  under 
public  management  will  only  supply  a  small  section 
of  the  community.  As  municipalities  are  not  bound 
to  supply  all  customers  when  they  municipalise  any 
trade,  it  is  even  possible  that  a  citizen  may  be  forced 
to  contribute  to  the  undertakings,  and,  though  a 
resident,  may  be  refused  a  supply  from  them. 
JNloreover,  where  an  industry  is  established  for 
the  sake  of  making  a  profit,  and  thus  reducing  the 
rates,  the  desired  results  will  affect  taxpayers 
exactly  in  proportion  to  their  contributions,  and 
not  equally,  as  may  be  the  case  with  many 
questions  affecting  law  and  order.  And,  lastly, 
some  risk  must  be  incurred  by  all  who,  in  the  case  of 
the  failure  of  any  municipal  enterprise,  may  be  called 
on  to  help  to  make  good  the  municipal  revenue, 
and  shareholders  in  ratepaying  companies  are  con- 
cerned in  the  results  of  Municipal  Trade  whether 
resident   or    not.      Thus    the    arginiients    for    "one 


CHAP,  v.]  THE   UNRATED   VOTER  97 

"  man,  one  vote,"  which  depend  on  the  equality  of 
interests,  become  very  weak  if  much  pubhc  money 
is  spent  or  risked  in  the  municipahsation  of  trades 
whicli  are  not  of  very  general  utility ;  and,  in  these 
circumstances,  the  fact  that  all  ratepayers  have  equal 
voting  power  then  produces  a  sense  of  injustice. 

(4)  Thus  taxation  is  more  likely  to  be  resented 
when  the  proceeds  are  devoted  to  trade  purposes 
than  when  they  are  utiUsed  in  ordinary  civic 
expenditure.  "  An  examination  of  the  rate-book  of 
"a  northern  manufacturing  town  shows  that  four- 
'*  fifths  of  the  rates  are  paid  by  one-fourth  of  the 
"  constituency.  This  one-fourth  includes  colliery, 
"  manufacturing,  and  railway  companies,"  the  majority 
of  the  shareholders  of  which  have  no  votes,  and 
"  no  power  of  influencing  local  opinion.  The  other 
"  three- fourths  consists  entirely  of  working-people 
"  occupying  houses  rated  at  £8  a  year  and  under. 
"  The  rates  of  these  houses  are  compounded  for  by 
"  their  landlords."  ^  This  condition  of  things  raises 
very  important  questions,  not  only  in  connection 
with  the  justice  of  our  methods  of  representation, 
but  also  as  to  the  incentives  to  municipal  economy. 
There  are  many  who  believe,  as  I  do,  that  the 
imrated  householder  may  fairly  be  said  to  pay  his 
full  share  of  the  rates  in  an  indirect  manner  in  the 
long  run  and  on  the  average ;  but,  the  fact  that  he 
does  not  perceive  that  he  is  contributing  to  the  civic 
expenditure  produces  a  marked  tendency  to  public 
extravagance.  This  evil  would  become  more  serious 
if  Municipal  Trade  became  more  widely  extended. 
The  imrated  voter  may  clamoiu*  for  clieap  gas 
from    municipal   gas-works,   or    low   tramway   fares 

^  "Traction  and  Tiausiuibsiou,"  Di.\uu  11.  Davios,  Octubcr  1901,  i».  97. 

G 


98  ADMINISTRATION  AND  COllRUPTION   [chap,  v 

on  municipal  tram-lines ;  and,  if  prices  and  fares 
are  reduced  below  a  certain  level  in  consequence 
of  his  demands,  a  loss  must  fall  on  the  town,  and 
that  loss  must  be  made  up  out  of  taxation.  In  these 
circumstances  the  luirated  voter  may  perceive  that 
this  deficit  is  largely  made  up  out  of  the  pockets 
of  the  minority  of  rich  ratepayers  and  unrepre- 
sented shareholders ;  but  he  will  seldom  realise  that 
some  of  the  burden  falls  back  on  his  own  shoulders. 
Municipal  Trade  will  certainly  increase  the  evil 
effects  of  the  compounding  system,  and  such 
considerations  open  up  a  wide  vista  of  possible 
dangers. 

(5)  A  very  definite  sense  of  injustice  is  aroused 
when  Municipal  Trade  enters  the  field  of  com- 
petiti\'e  industry.  In  these  circumstances  the  rate- 
payer may  find  himself  forced  to  contribute,  or,  at 
all  events,  obliged  to  run  the  risk  of  such  com- 
pulsion, in  order  to  establish  a  rival  to  himself 
in  his  business,  a  competition  from  which  he  may 
suffer  material  losses.  Railway  companies  frequently 
pay  rates  to  Local  Authorities  managing  extensive 
tramway  systems,  which  now  constitute  their  most 
formidable  rivals  as  regards  local  traffic.^  Kepre- 
sentations  haxe  actually  been  made  on  behalf  of 
associations  of  ironmongers  protesting  against  the 
sale  and  hiring  out  of  gas-stoves  by  municipalities, 
especially  as  the  rates  charged  were  stated  to  be 
such  as  to  render  competition  impossible.-  As 
regards  the  creation  of  a  spirit  of  discontent  against 
the  civic  administration,  it  is  hardly  an  answer  to 
urge  tliat  the   retailers   ha\e  lost   but   Httle   by  this 

»  See  Times,  2iid  September  1902. 
-  M.T.R.,  Q.  2959. 


CHAP,  v.]     COMPETITION  AND   DISCONTENT  99 

municipal  competition,  whilst  the  private  manu- 
facturers of  stoves  have  gained  considerably,  even 
if  the  latter  assertion  can  be  substantiated.^  More- 
over, municipalities  may  not  in  future  limit  them- 
selves to  the  mere  sale  of  accessories  ;  and  complaints 
have  already  been  made  against  the  exceptional 
authorisation  obtained  by  the  Sheffield  Corporation 
for  the  manufacture  of  electrical  fittings.  No  doubt, 
as  the  law  stands,  private  companies  managing  gas 
and  electrical  works  might  manufacture  fittings,  and 
sell  tliem  at  very  low  rates  in  order  to  stimulate  the 
sale  of  their  main  product ;  and  they  might  in  this 
manner  inflict  loss  on  private  rivals.  The  same 
complaint  may,  therefore,  be  brought  against  both 
public  and  private  competitors ;  but  such  complaints 
against  private  competitors  would  not  create  any 
feeling  of  discontent  against  local  administrations ; 
for  such  competition  would  not  subject  any  one 
to  the  risk  of  additional  taxation.  The  dissatisfac- 
tion caused  by  the  competition  of  municipalities, 
with  their  many  advantages  in  the  struggle  for 
trade,  is  aggi-avated  in  some  minds  by  the  fact  that 
Local  Authorities  are,  as  compared  with  private 
proprietors,  especially  protected  from  vexatious 
litigation.^ 

(G)  Municipalities  have  certain  powers  of 
inspection,  and  exercise  certain  quasi-judicial 
functions ;  and,  whenever  these  powers  are  used 
in  ways  which  might  possibly  tend  to  tlie  advance- 
ment of  JNIunicipal  Trade  at  tlie  expense  of  pri\ate 
trade,  suspicions  as  to  the  impartiality  of  the  Local 

1  M.T.R.,  Qs.  3079,  3089. 

2  Public  Autliovities  Protection  Act.    Sec  "  Traction  and  Transmission," 
November  1901,  p.  163. 


100        ADMINISTRATION  AND  CORRUmiON   [chap.  v. 

Authority  will  certainly  be  aroused.  For  example, 
the  Corporation  of  the  town  of  JMackpool,  where 
the  tramways  are  municipalised,  refused  to  issue  the 
necessary  licenses  for  certain  omnibuses,  thus  freeing 
their  own  enterprise  from  this  competition ;  and, 
even  if  this  obvious  consequence  of  their  action  had 
in  truth  no  influence  on  their  judgment,  it  would 
be  almost  impossible  to  convince  the  omnibus 
proprietors  of  this  fact.^  Somewhat  the  same  senti- 
ments may  be  aroused  when  a  municipality  both 
owns  the  gas-works  and  is  charged  with  the  duty 
of  testing  gas-meters,  as  is  the  case  in  England. 
The  mere  creation  of  discontent  against  the  civic 
administration  is  to  be  avoided ;  but  in  these  cases 
far  more  objectionable  results  may  follow.  To  create 
an  impression  that  a  public  body  is  not  impartial 
is  the  first  step  towards  making  it  partial.  For  this 
reason  alone  there  are  grave  objections  to  the  com- 
bination of  certain  administrative  and  business 
functions  in  the  same  hands,  which  must  often  take 
place  when  municipalities  undertake  the  manage- 
ment of  trades ;  and  other  reasons  for  coming  to 
the  same  conclusion  will  be  given  in  a  subsequent 
chapter. 

(7)  There  is  yet  to  be  noticed  another  cause  of 
possible  discontent  arising  from  jNIunicipal  'J'rade, 
though  in  this  instance  it  is  only  aroused  against 
neighbouring  municipalities.  This  is,  however, 
very  objectionable,  as  it  renders  harmonious  co- 
operation for  A'arious  objects  less  probable.  The 
private  owners  of  tramways,  gas-works,  etc.,  are 
as  a  rule  willing  to  enlarge  the  area  of  their  opera- 
tions so  as  to    cover   all    profitable   ground    without 

'  M.T.ll.,  Q.  2609. 


CHAP,  v.]  TRADE   IN   OUTSIDE   AREAS  101 

reference  to  civic  boundaries ;  but  the  promoters  of 
such  enterprises  would  not  generally  find  it  worth 
while  to  establish  works  in  outryingidistricts-'if  they 
were  excluded  from  the  more  -  profitable  centres. 
Cities  with  municipal  trades ''Under -their  •  iniirfiJio'e- 
ment  are  also  as  a  rule  willing  to  trade  beyond  their 
boundaries  if  such  operations,  undertaken  as  adjuncts 
to  their  own  enterprises,  would  be  likely  to  prove 
profitable ;  but  usually  they  refuse  to  give  to  the 
Local  Authorities  of  these  outside  districts  any  share 
whatever  in  the  management.  Taking  the  case  of 
tramways  as  an  example,  it  follows  therefore  that 
these  outside  districts  may  find  themselves  forced 
to  face  the  following  alternatives :  ( 1 )  no  tramways 
whatever ;  (2)  the  establishment  of  an  unprofitable 
municipal  tramway  ;  (3)  or  the  control  of  the  tram- 
ways within  their  boundaries  by  the  elected  authority 
of  another  district.  The  compulsory  establishment 
of  Joint  Boards  nominated  by  the  different  Local 
Authorities  concerned  will  be  considered  in  a  subse- 
quent chapter ;  but,  taking  things  as  they  are,  it 
is  obvious  that  large  municipalities  must  acquire  in 
such  circumstances  a  great  hold  over  contiguous 
districts,  and  that  discontent  is  likely  to  be  aroused 
against  their  too  powerful  neighbours  in  these  out- 
side areas.^ 

(8)  The  foregoing  objections  to  Municipal  Trade 
may  not  be  held  to  be  very  serious  ;  but  they  sliould 
count  for  wliat  tliey  are  wortli.  Passing  on  to 
more  weighty  matters,  it  is  urged  that  Municipal 
Trade  throws  a  great  amount  of  additional  work  on 
Local  Authorities,  and  tliat  tliis  lias  two  distinct 
evil  consequences :  it  lessens  the  time  which   these 

M.T.R.,  Q.  2419. 


10:2        ADMINISTKATION  AND  COltRrmON   [chai>.  v. 

bodies  can  devote  to  their  primary  and  essential 
duties  ;  and,  by  increasing  the  unwiUingness  of  busy 
men?  to  deVote  -tiieir  time  to  pubhc  affairs,  it  lowers 
the  average  administrative  capacity  of  Local 
A utNcn-ities. "  Taking  the  latter  objection  first,  it 
is  stated  in  reply,  tliat  even  in  towns  where  there 
is  much  jNIunicipal  Trade,  there  are  always  more 
candidates  than  vacancies,  and  consequently  there 
are  plenty  of  men  from  whom  to  select  repre- 
sentatives. No  doubt,  there  are  always  plenty  of 
persons  willing  to  serve  on  the  Councils  of  large 
cities ;  but  this  is  not  the  case  in  smaller  areas. 
And,  even  where  it  is  the  case,  it  is  no  answer  to 
the  argument  now  under  consideration.  That  a 
man  is  willing  to  become  a  candidate  is  but  a  feeble 
guarantee  of  liis  fitness  to  become  a  Councillor.     Tlie 

o 

man  who  has  retired  from  business,  or  from  whom 
business  has  retired,  may  be  willing  to  offer  his 
services  in  spite  of  the  possibility  of  considerable 
calls  being  made  on  his  time  ;  whereas  the  younger, 
more  successful,  or  more  able  traders  or  professional 
men  may  well  be  deterred  from  joining  a  Municipal 
Council  on  account  of  any  increase  in  the  work 
thrown  on  that  body.  It  may  be  that  there  is 
already  "  a  growing  tendency  on  the  part  of  leading 
"  men  in  all  professions  and  businesses  to  abstain 
"  from  taking  part  in  the  public  administration 
"  of  our  large  cities "  ;  and,  even  if  this  is  not 
the  case  at  present,  it  might  well  become  true 
if  additional  duties  were  undertaken  by  I^ocal 
Authorities.^  Yet  this  is  the  class  of  men  whose 
presence  is  most  necessary,  especially  if  ^lunicipal 
Trade  is  to  be  undertaken ;  and  their  absence 
1  "Traction  and  Transmission,"  July  1901,  p.  205. 


CHAP,  v.]     EFFECT  OF  INCREASE   OF  WORK  103 

must    lessen    the    business    capacity    of  the    Local 
Authorities. 

(9)  As  to  the  second  of  the  above-mentioned 
effects  of  municipal  trading,  it  is  obvious  that  any 
new  business  must  lessen  the  time  available  for 
the  original  duties  of  Local  Authorities,  unless 
either  the  total  number  of  hours  of  work,  or  the 
number  of  representatives  is  increased ;  unless,  in- 
deed, it  be  possible  to  make  better  arrangements 
for  the  performance  of  the  work  than  those  existing 
at  present.  As  to  increasing  either  the  number  of 
hours  devoted  to  civic  work  by  councillors,  or  the 
number  of  elected  representatives,  the  considerations 
suggested  in  the  foregoing  paragraph  point  to  the 
conclusion  that  the  result  woidd  be  tlie  election  of 
administrators  somewhat  less  efficient  on  the  average 
than  those  now  elected.  As  to  the  possibihty  of 
gaining  much  time  by  improved  methods  of  work, 
this  could  only  be  done  to  any  considerable  extent 
where  the  methods  of  administration  are  now  de- 
fective; and  an  increase  of  work  might  make  any 
reform  in  this  direction  less  probable,  because  it 
would  tend  to  lower  the  business  capacity  of  the 
body  elected.^  Lastly,  it  has  been  suggested  that 
the  number  of  representatives  miglit  be  increased 
without  evil  effects  if  they  were  paid ;  but  the 
objections  to  paying  moderate  salaries  to  men 
elected  to  perform  technical  duties  is  far  gi-eater 
than  the  objection  to  paying  representatives  whose 
main  duties  are  to  represent  the  wishes  and  griev- 
ances of  their  constituents,  and  to  attend  to  the 
more  simple  matters  of  administration. 

(10)  On    all    these    questions    the    evidence    is 

'  M.T.R.,  Q.  784. 


J04.        ADMINISTRATION  AND  CORIUTTION   [chap.  v. 

conflicting.  INTy  ova\  impression  is  that  the  evil 
ellccts  of  iMunicipiil  Trade,  due  to  the  influence 
of  the  extra  work  thus  tlirown  on  Local  Autliorities, 
is  not  likely  to  be  very  serious  in  large  cities  if  this 
trade  is  not  very  extensively  undertaken  ;  but  that 
a  wide  extension  of  municipal  industrial  enterprise 
would  produce  a  marked  deterioration  in  the  business 
capacity  of  these  bodies ;  and  that,  whether  this 
would  or  would  not  be  the  case,  the  ordinary  civic 
duties  would,  in  these  circumstances,  be  less  efliciently 
performed.^ 

(11)  If  municipalities  undertake  trading  enter- 
prises, they  must  become  involved  in  labour  disputes 
and  in  questions  affecting  trades  unions ;  and  this 
is  objectionable  in  many  ways.  Party  spirit,  which  is 
always  too  apt  to  make  itself  felt  in  local  affairs,  will 
thus  certainly  be  increased.  Trades  unions  will 
endeavour  to  capture  Town  Councils  for  the  sake 
of  enforcing  the  rates  of  wages  and  the  conditions 
of  employment  recognised  by  them  both  on  Local 
Authorities,  and,  through  them,  on  manufiicturers 
in  general.  If  municipal  contests  are  fought  on 
such  grounds  as  these,  the  councils  elected  will 
certainly  be  not  so  well  suited  to  perform  their 
ordinary  administrative  duties ;  and  the  dislike  of 
having  to  deal  with  such  questions  will  prevent 
many  suitable  persons  from  presenting  themselves 
iis  candidates." 

(12)  A  far  more  serious  objection  to  municipal 
trading  is  the  tendency  to  municipal  corruption 
which  the  existence  of  a  number  of  employees 
paid   directly  by   municipalities  must   produce.      It 

1  M.T.R.,Q3.  1548,  1566,  2086,  2458,  3119,  3475,  4117,  4261. 

2  See  Times,  lOtli  September  1902. 


CHAP,  v.]        VOTERS   PAID   BY   THE   STATE  105 

is  obvious  that  there  must  always  be  a  temptation 
for  voters  in  the  pay  of  a  governing  body  to  use  their 
votes  on  personal  and  not  on  pubhc  grounds,  and 
for  tlie  elected  authorities  to  give  away  places  as  a 
reward  for  political  services.  These  demoralising 
influences  must  always  result  from  the  direct 
employment  of  labour  by  a  democratic  government, 
and  this  danger  has  frequently  been  pointed  out 
by  prominent  authors.  For  example,  INIr  Lecky, 
speaking  of  the  pressure  put  on  ^lembers  of  Parlia- 
ment to  raise  the  wages  of  public  employees,  says 
that  "  it  would  be  scarcely  possible  to  conceive  a 
"habit  more  calculated  to  demoralise  constituencies 
"to  the  core,  and  more  certain,  if  it  spreads  widely, 
"  to  destroy  all  sound  patriotic  feeling  in  the 
"  nation."  ^  With  reference  to  the  difficulty  of  deal- 
ing with  a  large  class  of  public  servants,  the  late  I^ord 
Farrer  wrote  that  "no  one  who  has  watched  the 
"pressure  which  the  services  can  bring  to  bear  on 
"  Government  through  the  medium  of  INIembers  of 
"  Parliament,  will  undervalue  this  danger."  -  And 
Leroy-Beaulieu  urges,  in  the  same  spirit,  that  State 
railways  in  France  would  certainly  be  used  as  a 
means  of  electoral  pressure  and  corruption.^  In  the 
regulation  of  our  public  affairs,  these  warnings  have 
received  but  scant  attention. 

(13)  The  possibility  of  conniption  arising  from 
State-paid  labour  must  be  obvious  to  every  one ;  and 
it  is  evident  that  the  letting  of  houses  and  market 
stalls  by  Local  Authorities  gives  them  opportunities 
of  using  illegitimate   influences   over  their  tenants.' 

^  "  Democracy  and  Liberty,"  Lecky,  vol.  ii.  p.  387. 
2  "The  State  in  its  Relation  to  Trade,"  T.  H.  Farrer,  1883,  y.  108. 
»  "L'Etat  j\Ioderne  et  ses  Fonctions,"  P.  Leroy-Beaulieu,  1890,  p.  132. 
*  M.T.R.,  Q.  2431. 


lOG       ADMINISTRATION  AND  CORIUI^ION     [chap.  v. 

But  some  of  the  more  sul)tle  evil  effects,  which  are 
thus  produced,  are  not  so  readily  recognised.  \Vhen 
tlie  (juestion  is  considered  in  the  abstract,  probably 
the  majority  of  men  wlio  work  for  wages,  or  at 
all  events  a  large  minority,  rightly  or  wrongly  think 
that  their  services  are  not  adequately  rewarded ; 
and,  in  consequence,  demands  for  increase  of  pay 
often  have,  in  the  minds  of  the  applicants,  merely 
the  appearance  of  demands  for  justice.  An 
organisation  to  secure  just  treatment  by  a  public 
authority  is  not  readily  condemned  by  public 
opinion ;  but  an  organisation  amongst  State 
employees,  the  main  object  of  which  is  to  obtain 
better  terms  of  employment  for  its  members,  has 
at  least  the  effect  of  encouraging  the  vote  being 
given  on  personal  grounds,  and  not  w^ith  the  view 
of  securing  the  public  welfare.  Cases  have  already 
been  recorded  in  England  of  municipal  employees 
issuing  an  appeal  to  the  electors  in  support  of 
particular  candidates  at  elections  pledged  to  support 
their  interests.^  With  the  introduction  of  this 
habit  of  mind,  the  demoralisation  of  this  portion 
of  the  electorate  commences :  for  the  question 
whether  each  demand  is  just  or  not  soon  falls  into 
the  backgi'ound,  and  the  vote  comes  to  be  regarded 
as  something  which  should  not  be  given  except  for 
value  received. 

(14)  Statistics  appearing  in  the  Labour  Gazette 
prove  that  there  are  frequent  and  great  fluctuations 
in  the  rate  of  wages  of  workmen  in  private  em- 
ployment; and,  if  the  wages  of  public  employees 
are  to  be  kept  at  the  same  level  as  private  wages, 
they  must  rise  and  fall  also  from  time  to  time."     But 

1  See  Times,  10th  September  1902.     2  Times,  lOtli  September  1902. 


CHAP,  v.]  DEMORALISING  INFLUExNCES  107 

it  can  never  be  right  to  allow  the  decision  on  such 
questions  to  be  in  the  slightest  degi*ee  influenced 
by  the  threat,  or  even  by  the  possibility,  of  votes 
being  affected  thereby.  Weak  candidates  are, 
however,  tempted  to  make  promises  on  this  subject, 
and  such  promises  are  demoralising  both  to  them- 
selves, and  also,  by  suggesting  the  cash  value  of  the 
vote,  to  the  electorate.  \"otes  can,  no  doubt,  be 
won  in  this  way,  and  the  evil  effect  will  be  intensi- 
fied where  there  exist  organisations  or  agitations  for 
obtaining  better  terms  of  employment.  Associations 
of  public  employees,  when  not  influenced  by  corrupt 
motives,  are  generally  directed  by  the  men  who  are 
most  impressed  by  the  insufficiency  of  the  rewards 
for  their  services,  and  their  demands  will,  as  a  rule, 
be  carried  beyond  the  limits  of  what  is  reasonable. 
When  wages  are  falling,  leaders  of  this  type  will 
be  unlikely  to  determine  on  rational  grounds 
whether  it  is  wise  to  submit  to  a  reduction.  It 
follows  that,  if  representatives  regard  the  question 
merely  from  the  point  of  view  of  what  is  right, 
an  elected  body  employing  labour  must  frequently 
find  it  necessary  to  refuse  to  grant  the  requests, 
and  to  act  against  the  wishes  of  their  employees, 
whether  expressed  individually  or  collectively,  as  is 
now  often  the  case.  The  more  conscientious  the 
representati\'e  the  more  likely  is  he  to  take  a 
prominent  part  in  urging  the  refusal  of  luireason- 
able  demands  and  thus  to  earn  the  displeasure  and 
the  consequent  loss  of  votes  of  the  nmnicipal 
employees.  Those  who  oppose  excessive  ex- 
penditure even  on  remunerative  enterprises  would, 
moreover,  often  share  the  same  fate ;  for  in  the  case 
where,   for   example,   we   hear    of   the   advocacy   of 


108      ADMINISTRATION  AND  CORRUPTION    [chap.  v. 

new  baths  being  "regarded  as  an  excellent  bid  for 
"the  working-class  vote  in  the  district  concerned," 
we  may  be  sure  that  the  conscientious  opponent 
on  economical  grounds  of  such  expenditure  would 
lose  popularity  in  proportion  to  his  opposition.^ 
In  these  ways  a  premium  is  placed  on  the  return 
of  the  least  scrupulous  man  or  party,  and  this 
must  in  time  produce  a  detrimental  effect  on  the 
character  of  any  representative  body  when  there 
are  many  voters  in  its  employment." 

(15)  When  there  are  many  rate-paid  voters,  not 
only  are  high-minded  men  less  likely  to  be  elected, 
but  they  are  decidedly  less  likely  to  seek  election. 
Every  one  likes  to  fight  on  even  terms,  and  the 
terms  will  not  be  even  when  an  honest  man  is  con- 
testing a  seat  against  an  unscrupulous  opponent  in 
a  position  enabling  him  to  exercise  illegitimate 
influence  over  many  voters.  INIoreover,  all  right- 
minded  men  must  dislike  the  necessity  of  refusing 
applications  from  employees  for  higher  wages  or 
better  terms  of  employment.  Thus,  as  a  rule, 
conscientious  men  will  find  both  the  election  to 
and  the  service  on  a  representative  body  more 
unpleasant  if  it  has  to  deal  directly  with  many 
employees  ;  and  the  amount  of  unpleasantness  which 
most  men  are  willing  to  face  for  the  public  good  is 
strictly  limited.  The  evil  effects  of  the  unwilling- 
ness"^ on  the  part  of  many  high-minded  citizens  to 
undertake  public  duties  is  clearly  seen  in  America, 
where  it  is  widely  felt;  and  it  would  be  a  national 
misfortune  if  a  distaste  for  service  on  Municipal 
Councils  became  a  common  sentiment  in  England; 

^  Times,  18th  Sej)tember. 
2  M.T.R.,  Q.  2475. 


CHAP,  v.]  DEMORALISING  INFLUENCES  109 

a  result  which  the  introduction  of  municipal  trading 
on  an  extensive  scale  would  certainly  have  some 
tendency  to  produce.  No  country  in  the  world  can 
compare  with  England  as  regards  the  wide  powers 
conferred  on  INIunicipal  Councils,  combined  with 
the  high  character  of  the  representatives  serving  on 
them ;  and  our  exceptional  position  should  not  be 
imperilled  except  for  very  grave  reasons. 

(16)  Moreover,  the  demoralisation  due  to  the 
absence  of  high-minded  men  from  elected  bodies 
is  often  like  a  disease  which  tends  to  spread. 
Those  who  are  desirous  of  influencing  votes  by 
any  objectionable  methods  will  dislike  the  presence 
amongst  the  leaders  of  their  party  of  men  more 
scrupulous  than  themselves,  who  may  stand  in  the 
way  of  their  schemes.  Where  party  organisation  is 
powerful,  the  existing  members  of  a  representative 
body  have  gi-eat  influence  in  the  choice  of  new 
candidates,  and  the  disease  will  spread  by  the  exer- 
cise of  this  influence  to  keep  off"  the  Council 
"  faddists  "  or  men  "  with  no  knowledge  of  business," 
as  the  more  conscientious  will  be  called. 

(17)  The  foregoing  paragraphs  indicate  some 
of  the  more  subtle  of  the  evil  influences  under 
discussion.  Of  the  more  obvious  demoralising 
factors,  the  effect  of  patronage  is  the  most 
prominent.  Applicants  of  nearly  equal  merit  will 
often  present  themselves  in  competition  for  a  place, 
and  in  such  cases  the  tendency  of  the  majority  to 
favour  the  man  of  their  own  particular  political  faith 
is  difficult  to  resist.  The  habit  of  giving  favourable 
consideration  to  the  claims  of  party  followers  is  very 
readily  established,  and  the  more  opportunities 
there  are  for  such  political  nepotism,  the  more  people 


110      ADMINISTRATION  AND  CORRUPTION     [chap.  v. 

will  get  used  to  the  idea,  and  the  less  they  will  be 
shocked  at  it.  This  is  the  first  step  in  the  down- 
ward path  leading  to  corruption.  It  is  easy  to  pass 
from  this  state  of  mind  to  one  in  which  it  appears 
justifiable  to  "  placate "  the  rate-paid  voter  because 
his  vote  is  necessary  to  maintain  a  certain  party  in 
power;  and  this  view  may  be  advocated  in  the 
honest  belief  that  the  defeat  of  the  party  in  question 
would  be  a  public  misfortune.  Thus  by  downward 
stages  we  pass  on  to  the  spoils  system,  when, 
not  only  are  all  places  filled  by  applicants  of  the 
approved  colour,  but  men  are  turned  out  of  their 
employment  to  make  room  for  political  partisans, 
and  the  principle  of  "the  spoils  for  the  victor"  is 
openly  advocated.  The  last  stage  in  the  degradation 
is  when  the  voter  is  corrupted  for  private  ends, 
and  for  the  sake  of  filling  the  pockets  of  the  elected 
representatives  with  public  plunder — a  stage  hardly 
ever  reached  in  England. 

(18)  It  has  been  seen  in  a  previous  chapter 
that  there  is  a  tendency  for  municipalities  to  pay 
their  officials  lower  salaries  than  those  given  by 
private  firms,  and  this  also  is  said  to  be  a  circum- 
stance having  a  corrupting  influence.  Without 
doubt,  discontent  increases  the  temptation  to  dis- 
honesty. In  the  United  States,  for  example,  the 
legal  advisers  to  the  cities  are  generally  ill  paid, 
and,  in  consequence,  they  are  apt  to  pander  to  the 
great  private  companies  with  which  they  have 
dealings,  in  the  hope  of  being  transferred  to  more 
lucrative  employment  under  them ;  ^  and  somewhat 
similar  influences  are  likely  to  be  at  work  when 
trading  concerns  are   placed   under  public   manage- 

^  The  Independent,  6th  May  1897,  p.  570. 


CHAP.  T]  DEMORALISING  INFLUENCES  111 

ment.  Moreover,  when  anything  like  the  spoils 
system  exists,  the  uncertainty  of  tenure  of  muni- 
cipal employees  will  increase  their  temptation  to 
neglect  the  true  interests  of  their  employers,  the 
public,  and  thus  to  fall  under  corrupt  influences. 

(19)  When  any  reliance  is  placed  on  the  votes  of 
municipal  employees,  the  party  in  power  is  naturally 
tempted  to  increase  the  number  of  such  votes,  and 
to  favour  the  poHcy  of  municipal  enterprise  when- 
ever an  opportunity  occurs.^  In  all  circumstances, 
on  the  other  hand,  but  especially  when  the  ad- 
ministration is  not  pure,  it  is  easier  to  municipalise 
any  industry  than  to  take  the  same  business  out 
of  public  control  when  once  it  has  been  placed 
there.  The  reason  is  that  neither  public  nor  private 
administrators  like  to  abandon  their  powers ;  private 
owners,  when  their  works  are  bought  by  the  public, 
have  in  many  cases,  no  choice  about  the  matter ; 
whereas  a  public  body  can  only  be  made  to  abandon 
any  enterprise  by  the  force  of  public  opinion,  and 
that  force  will  be  ignored  as  long  as  possible  if 
the  party  in  power  feel  that  the  loss  of  oppor- 
tunities of  influencing  the  votes  of  their  employees 
may  injure  their  prospects  of  re-election.  False 
steps  in  the  direction  of  municipal  enterprise  are 
hard  to  retrace,  and  all  steps  in  that  direction 
should  therefore  be  taken  with  especial  care. 

(20)  The  foregoing  paragraphs  prove  that  the 
disease  of  municipal  corruption,  in  so  far  as  it  is 
due  to  municipal  enterprise,  does  not  tend  to  work 
itself  out  in  time.  We  have  just  seen  that, 
directly  the  elected  representatives  begin  to  rely 
on  controlled  votes,  they  will  be  tempted  to  adopt 

1  M.T.R.,  Q.  3543. 


1V2       ADMINISTRATION  AND  CORRUl^lON     [chap.  v. 

the  policy  of  iiicrejising  the  number  of  voters  in 
the  pay  of  the  pubhc.  This  increase  of  patronage 
will  increase  the  forces  tending  to  corrupt  the 
administration,  and  will  thus  diminish  the  chances 
of  the  elected  body  being  composed  of  high- 
principled  representatives ;  and  the  more  imscrupu- 
lous  the  governing  body,  the  more  advantage  they 
will  reap  from  the  attempt  to  control  the  votes 
of  their  employees.  Thus  we  find  ourselves  in  a 
vicious  circle.  Corruption  tends  to  increase  the 
number  of  controlled  voters ;  and  an  increase  in 
the  number  of  controlled  voters  tends  to  increase 
coiTuption.  The  tendency  is  for  corruption  to  go 
from  bad  to  worse,  and  for  the  disease  to  become 
chronic. 

(21)  All  that  has  been  said  thus  far  tends  to 
prove  that  an  increase  in  the  number  of  voters  in 
the  pay  of  the  community  increases  the  danger  of 
corruption.  The  replies  that  can  be  made  to  these 
arguments  must  now  be  considered.  In  the  first 
place,  it  has  been  urged  that  the  ballot  is  a  complete 
protection  to  the  voter,  and  that,  under  proper 
laws,  no  corrupt  pressure  can  be  brought  to  bear 
on  him.  It  may  be  worth  noting  that,  when 
corruption  becomes  very  rampant,  little  reliance 
can  be  placed  even  on  the  secrecy  of  the  ballot.^ 
But,  putting  this  aside,  it  must  be  remembered 
that  it  is  the  voter  himself  who  becomes  demoralised, 
and  who  therefore  deliberately  gives  his  vote  on 
personal  grounds  and  inider  corrupt  influences. 
Against  this  evil  the  ballot  can  be  no  safeguard 
wliatever.  INloreover,  influences  may  be  brought 
to   bear   on  rate-paid  voters  to  make  them  promise 

^  "Aiucricau  CoininonwealLli,"  Bryce,  nole  on]).  202,  vol.  iii. 


CHAP,  v.]       ORGANISATION  OF  EMPLOYEES  113 

their  votes ;  and,  if  such  efforts  are  successful, 
they  are  certain,  in  spite  of  the  ballot,  to  have  a 
very  considerable  influence.  It  is,  for  Anglo-Saxons 
at  all  events,  pleasanter  to  tell  the  truth  than  to 
tell  a  lie ;  and  where,  as  is  so  often  the  case,  there 
is  great  apathy  concerning  municipal  affairs,  a 
large  proportion  of  the  promises  given  will  be 
kept  without  any  consideration  as  to  the  questions 
really  involved  in  the  vote.  The  ballot  is,  in  fact, 
very  little  protection  against  municipal  corruption. 

(22)  Then,  again,  it  has  been  urged  that  those 
who  object  on  the  foregoing  gi'ounds  to  the  muni- 
cipalisation  of  tramways  or  gas-works,  for  example, 
should  logically  also  object  to  any  other  institutions, 
such  as  schools  or  the  post-office,  being  placed 
under  public  control ;  for  the  corrupting  influence 
of  State-paid  voters  must  be  the  same  whatever 
their  occupation  may  be.  But  if  each  case  is 
judged  on  its  own  merits,  the  advantages  being 
balanced  against  the  disadvantages,  there  is  nothing 
illogical  in  advocating  the  municipalisation  of  some 
services  whilst  opposing  it  in  other  cases.  The  exis- 
tence of  a  powerful  organisation  of  school  teachers, 
one  object  of  which  is  to  influence  ^1  embers  of 
Parliament,  has  some  evil  consequences :  for,  with- 
out doubt,  if  it  did  not  tend  to  make  the  teachers 
gives  their  votes  on  personal  grounds,  it  would  not 
be  powerful.  But  the  advantages  of  State  schools 
are  so  great  as  to  considerably  outweigh  this  and 
the  other  evils  of  State  education.  In  fact,  the 
argument  may  well  be  turned  the  other  way. 
There  are  many  services  which  at  present  are 
wisely  placed  under  State  management :  there  are 
others  which  might   very  possibly  be   municipahsed 

B 


114       ADMINISTRATION  AND  rORRTTPTION    [chap.  v. 

witli  advantage ;  and,  because  this  is  the  case,  we 
oiiglit  to  avoid  State  management  in  all  doubtful 
cases  in  order  to  mitigate  those  evils  which  are 
likely  to  be  more  and  more  felt  as  the  number  of 
voters  in  the  pay  of  the  community  increases.  It 
has,  moreover,  been  suggested  that  much  the  same 
demoralising  influences  as  those  arising  from  Mimi- 
cipal  Trade  are  felt  when  any  class  of  the  com- 
munity advocates  a  Parliamentary  bill  affecting 
their  personal  interests  ;  and  that  no  one  proposes  to 
prohibit  such  an  advocacy.  This  is,  however,  mere 
special  pleading ;  for  the  existence  of  an  evil  which 
cannot  be  prevented  is  no  argument  against  trying 
to  mitigate  a  similar  evil  which  is  under  our  control.^ 
(23)  It  may  be  urged  in  reply  to  the  foregoing 
contention  that,  even  if  all  the  quasi-monopolies 
were  municipalised,  the  number  of  voters  in  the  pay 
of  the  community  would  not  be  sufficient  to  be  a 
cause  of  municipal  corruption ;  because  this  would 
only  be  the  case  if  the  number  of  corruptible  voters 
was  sufficient  to  affect  the  results  of  elections.  But 
this  contention  is  not  sound.  Close  contests  nearly 
always  occur  in  a  considerable  proportion  of  the 
wards,  and  whenever  the  transference  of  a  very 
small  number  of  votes  from  one  side  to  the  other  is 
likely  to  affect  the  result,  the  pressure  of  the  rate- 
paid  voter  must  have  a  demoralising  influence. 
AVhere  the  number  of  rate-paid  voters  and  those 
influenced  by  them  is  really  not  enough  to  turn  the 
scale,  the  fact  that  this  is  the  case  cannot  be  known 
for  certain  till  after  the  contest  is  over,  and  the 
desire  to  get  all  possible  votes,  even  if  the  question 
of  municipal  employment  is  not  prominently  before 

'  M.T.R.,  Q.  3755. 


CHAP,  v.]  NUMBER  OF  PAID  VOTERS  115 

the  electorate,  will  drag  demoralising  promises  from 
weak  candidates,  and  thus  tend  to  lower  their  tone 
and  the  tone  of  the  contest.  A  small  body  of 
disciplined  voters,  and  an  even  smaller  number 
of  disciplined  canvassers,  like  the  Edinburgh 
IMunicipal  Workers'  Committee,^  will,  however, 
often  be  able  to  affect  the  result ;  and,  for  the 
following  reasons,  this  is  especially  apt  to  be  the 
case  in  municipal  contests.  Where  there  are  only 
two  well-marked  political  parties,  there  is  always 
a  tendency  for  the  voters  to  divide  themselves 
into  two  approximately  equal  camps ;  because  the 
discontent  due  to  the  acts  of  the  party  in  power 
tends  to  gradually  increase  the  number  of  con- 
stituents favourable  to  their  opponents  until  a  swing 
of  the  pendulum  occurs.  Now,  if  municipal  parties 
are  organised  on  national  party  lines,  it  often  happens 
that  the  discontent  due  to  the  action  of  the  dominant 
party  on  the  Council  has  not  much  effect  in  altering 
this  approximate  equiUbrium,  either  because  national 
affairs  are  more  interesting,  or  because  only  a  small 
fraction  of  the  voters  are  directly  affected  by 
municipal  misrule.  Thus  a  corrupt  party  in  a 
municipality  may  be  able  to  keep  themselves  in 
power  for  a  long  time  by  controlling  a  small 
margin  of  the  voters ;  or  their  hold  may  be  so 
strong  that  they  can  only  be  tiu-ned  out  by  their 
own  methods,  a  defeat  which  would  merely  result 
in  the  advent  to  power  of  another  corrupt  organisa- 
tion. It  is,  moreover,  important  to  note  that  the 
number  of  voters  in  the  pay  of  municipalities  will  not 
be  small  if  the  policy  of  municipalisation  is  pushed 
very   far.      In   Glasgow    the    number   of  voters   in 

1  See  Tiines,  10th  September  1902. 


116       ADMINISTRATION  AND  CORRTTPTION    [chap.  v. 

the  pay  of  tlie  municipality  pro})ubly  amounts  to 
about  7^  per  cent,  of  the  total  electorate,  and  the 
proportion  actually  coming  to  the  poll  may  be 
even  greater,  amounting,  possibly,  it  is  said,  to 
from  10  to  18  per  cent,  of  the  total  vote  cast.^ 
Since  all  voters  in  similar  employment  are  likely 
to  combine  together  to  protect  their  interests,  we 
should  consider  the  number  of  State-paid  rather 
than  the  number  of  rate-paid  voters ;  and  in 
Victoria,  8  per  cent,  of  the  adult  male  population 
are  already  in  the  pay  of  the  public,'-  whilst,  if 
our  Government  took  over  the  railways,  about  5 
per  cent,  of  the  adult  male  population  would  thus 
pass  into  State  employment.^  These  considerations 
are  suHicient  to  prove  that  the  arguments  as  to 
corruption  cannot  be  neglected  on  the  ground  of 
mere  numbers. 

(24)  Our  local  institutions  are,  we  may  be  told, 
nearly  irreproachable,  and,  experience  being  the 
safest  guide,  the  danger  of  corruption  should  not 
prevent  us  from  adopting  a  bold  municipal  policy. 
In  the  foregoing  discussion  we  have,  no  doubt,  been 
considering  some  influences  which  have  as  yet  been 
little  if  at  all  felt  in  the  United  Kingdom,  l^ut 
we  must  remember  that,  except  in  a  very  few 
towns,  the  number  of  rate-paid  voters  is  small 
compared  to  what  it  would  be  if  e\'en  the  more 
moderate  advocates  of  municipal  enterprise  had 
their  way.  Municipal  Trade  is,  moreover,  a  new 
growth,  and,  as  the  evil  influence  of  voters  being 
in  the  pay  of  an  elected  body  for  which  they  have 

»  M.T.R.,  Qs.  2772,  3446-3462. 

2  "  Democracy  and  Liberty,"  Lecky,  vol.  ii.  p.  467. 

»  "  The  Railways  aud  the  Traders,"  W.  M.  Acworth,  p.  2. 


CHAP,  v.]  EXISTING  CORRUPTION  117 

votes  has  been  shown  to  be  cumulative  in  its 
action,  we  should  not  rely  on  past  experience  as  a 
guide  for  the  future.  The  attention  which  the 
public  are  likely  to  give  to  municipal  works  for 
some  time  after  they  have  been  purchased  from 
private  owners  is  another  reason  why  coiTuption 
is  less  likely  to  arise  in  the  early  days  of  municipal 
enterprise ;  for  public  opinion  is  always  a  force 
tending  to  keep  things  pure,  and  it  is  only  when 
it  becomes  languid  that  "jobs"  are  likely  to  pass 
unnoticed.  For  all  these  reasons,  we  must  not  build 
confidently  on  the  existing  purity  of  our  local 
administrations  in  framing  our  policy  for  the 
future. 

(25)  INIoreover,  few  will  be  bold  enough  to 
assert  that  our  local  administrations  are  perfectly 
pure,  and,  wherever  the  germs  of  corruption  exist, 
there  the  disease  may  at  any  time  break  out. 
Candidates  may  now  rarely  "  make  a  point  of 
"  bringing  before  the  voters  the  special  claims  of 
"  the  employees  of  the  Corporation "  for  better  pay 
or  shorter  hours ;  but  it  is  done  sometimes,  and 
this,  as  we  have  seen,  is  the  first  step  in  the 
downward  path.^  .Jobbery  with  us  may  be  in- 
frequent and  of  a  mild  type ;  but  jobbery  does 
exist,  and,  with  a  great  increase  in  the  number  of 
rate-paid  voters,  the  danger  of  it  slowly  degenerat- 
ing into  absolute  corruption  woukl  be  very  great. 
But,  in  any  case,  the  evils  glaringly  apparent  in 
the  administration  of  American  cities,  where  the 
people  are  of  our  own  race,  and  where  the  institu- 
tions do  not  differ  fundamentally  from  ours,  makes 
it   certain   that   we    are    not    dealing   with   a   mere 

'   M.T.R.,  Qs.  3447,  1564,  aud  2058. 


118      ADMINISTRATION  AND  CORRUFnON    [chap.  v. 

fanciful  risk.  From  this  point  of  view  it  may  be 
as  well  to  point  out  how  deeply  seated  is  this 
evil  in  the  United  States. 

(2G)  As  to  certain  great  cities  of  America,  their 
state  of  corruption  is  notorious,  and  we  all  know 
that  "the  public  till  has  been  robbed  on  a  vast 
"  scale,  and  accounts  have  been  systematically  cooked 
"  to  conceal  thefts."  ^  JNIr  Lecky  considers  that  "  the 
*'  New  York  Commissioners  of  1876  probably  under- 
"  stated  the  case  when  they  declared  that  more  than 
"half  of  all  the  present  city  debts  in  the  United 
"  States  are  the  direct  results  of  intentional  and 
"corrupt  misrule."^  New  York  has  been,  perhaps, 
the  worst  of  all  the  cities,  but  much  the  same  tale 
could  be  told  as  to  many  others.  ]\Ir  J.  W.  Martin, 
writing  in  1899,  tells  us  that  "  in  Philadelphia 
"  the  Republican  machine,  under  *  Dave '  INIartin, 
"  remains  so  strongly  fortified  in  power  that  the 
"  Municipal  I^eague  thought  it  hopeless  to  oppose 
"  it  at  the  last  election,  especially  as  the  votes  for 
"  their  candidates  in  the  autumn  campaign  had  been 
"  miscounted  by  the  cheating  officials,  and  troops 
"  of  impersonators  and  repeaters  had  gone  im- 
"  molested  to  the  polls.  There  the  city  hall  is  still 
"  incomplete,  though  a  self-perpetuating  commission 
"  has  spent  upon  it  over  £4,000,000.  In  St  Louis 
"  a  commission  which  sat  in  the  spring  of  this  year 
"  discovered  that  a  head  of  the  Street  Watering 
"Department  had  received  money  from  contractors 
"  to  allow  them  to  work  regularly  below  their  con- 
"  tract,  and  had  compelled  them  to  abstain  from 
"  bidding  for  a  certain  district  which  he  retained  at 

'  "American  Coniinouwcaltli,"  Bryce,  vol.  ii.  of  3  vol.  edition,  p.  521, 
^  "  Democracy  and  Liberty,"  Lecky,  vol.  i.  p.  99. 


CHAP,  v.]  CORRUPTION  IN  AMERICA  119 

"  double  rates  for  a  man  of  straw  who  represented 
"himself;  it  showed  that  an  inefficient  Excise  Com- 
"  missioner  appeared  to  divide  his  enormous  salary 
"  with  a  State  Governor  and  others  who  secured  his 
"  appointment ;  and  that  other  officials  and  depart- 
"  ments  were  equally  dishonest.  In  Chicago  during 
"  last  year  the  regulation  that  street-paving  for 
"  more  than  a  small  amount  should  be  let  by 
*'  contract  to  the  lowest  bidder  was  evaded  in  favour 
"  of  party  friends  by  the  arrangement  that  separate 
"  bills  for  less  than  the  limiting  sum  should  be 
"  presented  for  bits  of  the  work,  the  same  contractor 
"  sending  in  a  sheaf  of  accounts  for  one  length  of 
"  street.  Quantities  of  street  repaii'ing  were  paid 
"for  and  not  executed.  Saloons,  gambling-houses, 
"  and  dens  of  ill-fame  were  protected  by  aldermen 
"and  allowed  full  play,  and  the  Civil  Service 
"laws  were  violated  with  shameless  contempt."^ 
It  is,  however,  hardly  worth  labouring  this  point 
further,  for  the  evils  due  to  the  spoils  system  are 
now  so  widely  known. 

(27)  With  regard  to  cities  of  less  than  100,000 
inhabitants,  Mr  Bryce,  it  is  true,  tells  us  that  they 
are  generally  as  pure  as  an  average  English  town.^ 
It  is,  as  this  great  authority  says,  extremely  difficult 
for  a  foreigner  to  form  a  correct  estimate  when  he 
has  to  rely  so  largely  on  hearsay  evidence ;  but  my 
impression  is  that  this  opinion  as  to  the  purity  of 
the  smaller  towns  is  far  too  optimistic.  There  is 
a  great  deal  to  show  that  corruption  has  spread 
widely  amongst  all  the  local  institutions  of  the 
United   States.      Mr   E.    W.    Bemis,   for    example, 

^  Conteviporary  Remcic,  Decoiuber  1899. 

'^  "American  Commonwealth,"  vol.  ii.  p.  521. 


120       ADMINISTRATION  AND  COURUlllON    [chap.  v. 

tells  us  of  Hamilton,  O.  (17,600  inhabitants  in 
1890),  that  it  "  belongs  to  that  pitiable  class 
"  which  seems  fortunately  to  include  less  than  one- 
"  third  of  the  seventy-four  public  [electrical]  plants 
'*  quoted  in  "  the  tables  given  by  him  "  which  allows 
"  politics  to  handicap  the  success  of  public  manage- 
"  ment."  ^  One  other  quotation  from  the  same  volume 
is  perhaps  worth  giving  to  indicate  the  condition 
of  thinofs  which  American  authors  of  a  certain  school 
are  not,  apparently,  prepared  to  condemn  as  un- 
satisfactory. The  words  are  those  of  Mr  Thomas, 
and  have  reference  to  Topeka,  a  city  which  had 
about  81,000  inhabitants  in  1890.  "The  standing 
"  charge  that  political  influence  and  jobbery  does 
"  and  will  destroy  the  efliciency  of  every  city-owned 
"  enterprise,  does  not  seem  to  be  substantiated  by 
"the  record  of  this  plant.  Although  the  tenure  of 
"  employment  of  the  less  skilled  workers  is,  perhaps, 
"  largely  regulated  by  political  considerations,  yet  the 
"  engineer  and  the  chief  linesman  and  trimmer,  who 
"  is  reputed  to  be  especially  expert,  as  well  as  the 
"  superintendent,  have  each  had  steady  and  permanent 
"employment  for  a  number  of  years,  even  through 
"  different  poUtical  administrations  in  the  city.  In 
"  fact  the  present  superintendent,  who  is  a  Re- 
"  pubUcan,  was  appointed  by  a  Mayor  who  is  a 
"  Democrat.  It  is  true,  however,  that  the  absence 
"  of  attempts  on  the  part  of  pohtical  workers  to 
"  secure  the  position  of  superintendent  might  be 
"  accounted  for  by  the  fact  that  his  salary  is  so 
"extremely  low,  .$1000  per  year,  as  to  offer  few 
"inducements  for  their  efforts."" 

>  "  Municipal  Monopolies,"  E.  W.  Bemis,  p.  274. 
-  Ibid.,  p.  265. 


CHAP,  v.]  THE  SPOILS  SYSTEM  121 

(28)  Surely  no  Englishman  can  read  such  state- 
ments as  these  without  feeling  the  strongest  desire  to 
keep  our  existing  purity,  such  as  it  is,  free  from  tlie 
terrible  evils  of  corruption  and  the  spoils  system. 
It  must  be  acknowledged  that  any  step  which 
increases  the  danger  of  the  introduction  of  this 
disease  should  only  be  taken  if  the  advantages  to 
be  derived  from  it  are  conclusively  proved  to  be 
of  great  importance. 

(29)  INIany  American  authors,  however,  whilst 
fully  admitting  the  evils  of  corruption  in  the  United 
States,  use  this  as  an  argument  for  municipal 
enterprise,  not  against  it.  For  instance,  JNIr  Albert 
Shaw,  the  well-known  authority  on  municipal 
government,  does  not  take  the  same  view  as  to 
municipal  management  of  labour  in  the  United 
States  as  he  does  with  regard  to  the  adoption  of 
the  same  system  in  Germany.  "  ^Vhere  govern- 
"  mental  authority  is  so  firm,  so  intelligent,  and  so 
*'  ably  and  honestly  exercised,  it  would  seem  to  [him] 
"to  be  a  matter  of  comparatively  little  moment 
"  whether  or  not  the  oNIunicipal  Government  carry  on 
"  as  direct  undertakings,  certain  so-called  monopoly 
"  services  of  supply."  On  the  other  hand,  he  tells  us 
that  "the  simple  fact  is  that  there  is  hardly  a 
"large  town  in  the  United  States  which  lias  a 
"  Municipal  Government  strong  enough  at  all  points 
"to  deal  advantageously  with  the  representatives 
"  of  corporate  [i.e.  private]  interest,  when  it  comes 
"  to  making  bargains.  The  wear  and  tear  upon  the 
"  morals  of  a  weak  JNIunicipal  Government  are  gi'cater 
"  by  far  when  it  comes  to  the  task  of  granting 
"  [concessions] — that  is  to  say,  of  making  bargains 
"  with  private  corporations — than  when  it  is  attempted 


122       ADMINISTRATION  AND  COKRUrTION     [chap.  v. 

"  to  carry  out  a  business  undertaking  directly  on  the 
"public  account.  Thus  jobbery  and  rascality,  waste- 
"  fulness  of  public  money,  and  bad  results  in  the  end, 
"are  more  likely  to  be  the  outcome  when  the  con- 
'*  tract  system  is  used  in  street  cleaning,  paving,  and 
"  various  other  public  works,  than  when  the  niunici- 
*'  pality  employs  its  own  men  to  clean  its  own  streets, 
"  lay  its  own  pavements,  and  do  its  own  public  work 
"  on  direct  municipal  account."  ^  Many  other  quota- 
tions in  the  same  strain  might  be  given ;  though 
it  is  probably  going  too  far  to  state  that  the 
American  "  leading  economists  unite  hi  charging " 
to  the  private  control  of  street  railways  "  the 
"general  depravity  in  municipal  administration  that 
"is  the  recognised  feature  of  the  period  from  which 
"we  are  just  emerging.'"" 

(30)  This  view  of  the  question  is  unfamiliar  to 
most  English  readers,  and  to  many  it  will  not 
be  at  once  apparent  how  municipal  corruption 
springs  from  private  trade.  The  concessions,  or  the 
powers  conceded  to  private  companies  to  enable 
them  to  lay  tramways  or  to  undertake  other 
services  requiring  special  rights,  are  often  exceed- 
ingly valuable  possessions,  especially  when  gi'anted 
without  proper  precautions.  In  the  United  States, 
nnniicipal  authorities  are  oflen  bribed  ui  order  to 
induce  them  to  grant  such  concessions,''  with  the 
natural    result    that    the    provisions    necessary    to 

*  The  Independent,  6th  May  1897,  p.  570. 

2  See  on  this  subject,  Mr  J.  W.  ^lartin's  article  in  the  Co7itemj)orary 
Review  of  Deceiiiljer  1899  ;  "  Municipal  Monopolies,"  Bouiis,  pp.  174,  370, 
and  599;  Mr  Robert  Donald,  "Traction  and  Transmission,"  June  1902, 
p.  101  ;  and  Hon.  11.  P.  Porter,  "  Traction  and  Transmission,"  August  1902, 
p.  226. 

^  As  to  a  similar  danger  in  England,  see  M.T.R.,  Q.  347. 


CHAP,  v.]  WATERED  CAPITAL  123 

safeguard  the  public  interests  are  often  omitted. 
The  promoters,  having  succeeded  in  their  corrupt 
enterprise,  then  proceed  to  feather  their  own  nests ; 
and,  for  the  purpose  of  obtaining  money  both  for 
this  object  and  for  the  previous  bribery,  they  raise 
far  more  capital  than  is  required  for  the  under- 
taking itself,  or,  in  other  words,  they  water  their 
stock.  Their  next  aim  is  to  obtain  profits 
sufficiently  large  to  pay  interest  on  this  watered 
capital,  and,  in  order  to  do  so,  high  fares  or 
prices  must  be  charged.  In  these  circumstances, 
competition  with  honest  rivals  becomes  impossible, 
and  rivals,  whether  honest  or  not,  soon  endeavour 
to  enter  the  field.  Concessions  rendering  competi- 
tion possible  are  demanded  from  the  Local  Authori- 
ties ;  and  then  it  becomes  "  necessary "  for  the 
original  company,  either  to  bribe  the  elected 
bodies  concerned  to  induce  them  to  refuse  the 
requests  of  their  rivals,  or  else  to  buy  out  those 
rivals,  whose  sole  object  is  very  often  to  be  thus 
bought  out.  Pri\'ate  owners  of  concessions  are, 
therefore,  peculiarly  liable  to  be  squeezed  or 
attacked  by  corrupt  authorities,  or  by  unscrupu- 
lous commercial  filibusters ;  and,  in  consequence, 
they  adopt  every  corrupt  expedient  to  enable  them- 
selves to  maintain  their  privileges.  The  votes  of  their 
employees  are  often  influenced  as  systematically  as 
are  the  votes  of  voters  in  the  pay  of  municipalities 
under  the  spoils  system,  and  are  given  sohd  for  the 
political  party  on  which  rehance  is  placed  for  pro- 
tection. In  fact,  we  occasionally  hear  of  a  private 
company  being  described  as  the  City's  Boss,  thus 
proving  it  to  be  the  organising  centre  of  corrup- 
tion.    The  result  of  this  condition  of  things  is  that, 


124      ADMINISTRATION  AND  CORRUPTION    [chap.  v. 

almost  everywhere  in  the  United  States,  private 
companies  are  continually  using  their  influence  with 
the  Legislatures  to  safeguard  their  interests  and 
to  secure  better  terms,  corruption  is  rampant,  and 
the  public  interests  are  gi'ossly  neglected. 

(31)  Granted  that  Municipal  Governments  are 
corruptible,  which  will  most  surely  keep  a  coiTupt 
gang  in  or  out  of  office — the  private  control  of  quasi- 
monopolies,  or  municipal  trading?  This  appears  to 
be  the  question  in  the  minds  of  American  authors, 
especially  as  regards  their  larger  cities.  We  are 
told  that  "the  constant  struggle  over  rates  and 
"regulation  of  the  private  companies  owning  con- 
"  cessions  must  answer  for  more  crimes,  corruption, 
"  and  scandals  in  New  York  City  than  docks,  ferries, 
"  markets,  bridges,  parks,  and  water  supply  com- 
'*  bined,"  the  latter  all  being  under  direct  municipal 
control.  But  even  if  these  premises  are  granted, 
it  does  not  follow,  as  so  often  appears  to  be 
assumed,  that  even  in  America  municipal  trading 
is  to  be  preferred  to  private  enterprise.  It  is  very 
probably  true  that  the  private  control  of  con- 
cessions does  produce  the  greater  volume  of 
rascality  and  jobbery ;  but  merely  to  balance  the 
amount  of  evil  directly  arising  from  the  two 
sources  is  to  omit  one  of  the  very  most  impor- 
tant considerations  affecting  the  question.  As  to 
the  injury  done  to  the  pubhc  by  corruption  in 
such  cases  as  that  of  New  York  City,  where  half 
the  public  debts  are  said  to  be  due  to  plunder, 
we  must  consider  carefully  whether  the  direct 
control  of  voters  paid  by  the  municipality  or  the 
indirect  control  of  voters  in  the  pay  of  private 
companies    is    the     system    which    will    give     the 


CHAP,  v.]     CORRUFl  ION  AND  PRIVATE  TRADE         125 

jobbers  and  thieves  the  greatest  hold  on  the 
Government.  The  very  first  question  to  be  con- 
sidered is,  which  method  of  regulating  these  quasi- 
monopohes  is  that  most  likely  to  facilitate  the 
campaign  against  corruption.  In  fact,  the  funda- 
mental error  in  the  American  argument  is  the 
tacit  assumption  that  their  Local  Governments  will 
continue  to  be  as  corruptible  as  at  present,  and 
that  it  is  almost  useless  to  attack  this  evil  by 
attempting  to  destroy  its  roots.  It  is  nowadays 
only  too  common  a  mistake  to  endeavour  to  find 
a  royal  road  by  which  the  remedy  for  some  social 
trouble  can  be  reached  by  legislation,  without 
recognising  that,  if  the  ultimate  source  of  the 
malady  remains  untouched,  a  cure  can  never  be 
effected.  In  all  reforms  our  attention  should  be 
mainly  directed  to  the  constitutional  origin  of  the 
disease,  and  not  to  the  symptoms. 

(32)  All  those  who  are  unfamiliar  with  this 
subject  will  instinctively  feel  that  the  fact  that 
American  municipahties  have  grossly  abused  their 
existing  powers  affords  a  bad  foundation  for  an 
argument  in  fa\'our  of  adding  greatly  to  the 
number  of  services  directly  under  their  control ; 
and  the  obvious  considerations  which  produce  this 
first  impression  are  in  my  opinion  unanswerable. 
In  a  country  where  the  appointment  of  additional 
municipal  employees  is  technically  known  as 
"  creating  new  voting  stock,"  and  where  this 
vothig  stock  is  known  to  be  used  for  corrupt 
purposes,  can  it  possibly  be  right  to  increase  the 
range  of  municipal  activities  with  the  object  of 
decreasing    this    corruption  ?  ^       The    direct    control 

'  "Aujci'icau  Commonwealth,"  Brj'ce,  vol.  iii.  p.  206, 


UG       ADMINISTRATION  AND  f'ORRT'PTION    [chap.  v. 

of  the  voter,  resulting  from  liis  })eing  directly  em- 
ployed by  the  muiiicipnlity,  must  ^ive  a  corrupt 
c^ang  the  firmest  hold,  even  if  it  does  not  enable 
them  to  obtain  an  amount  of  plunder  as  great  as 
that  which  can  be  squeezed  from  private  companies. 
This  is  the  strongest  as  well  as  the  simplest 
answer  to  the  contention  that  the  tendency  to 
municipal  corruption  is  an  argument  in  favour  of 
Municipal  Trade.' 

(33)  INIoreover  the  corruption  in  America,  which 
has  arisen  from  the  private  management  of  monopo- 
lies, should  probably  not  be  taken  as  the  normal 
condition  of  things,  because  the  temptations  arising 
from  this  cause  are  greatest  in  new  and  growing 
towns.  The  funds  necessary  for  the  bribery  of 
Local  Authorities,  and  for  the  enrichment  of  pro- 
moters, are  obtained  most  readily  when  concessions 
over  growing  districts  are  first  granted.  But  when 
new  concessions  are  less  and  less  frequently  granted, 
because  the  growi:h  of  towns  takes  place  more  and 
more  in  districts  already  allotted  to  the  owners  of 
existing  concessions,  the  evils  arising  from  this 
source  of  corruption  will  probably  become  less  and 
less  formidable.  American  authors  may,  therefore, 
have  exaggerated  the  permanency  of  the  troubles 
arising  from  private  enterprise,  and  it  may  be  true 
that  the  United  States  is  "just  emerging"  from  a 
period  of  "  general  depravity  in  municipal  adminis- 
"  tration,"  though  the  emergence  is  slow  and  difficult 
to  detect.  It  should  also  be  noted  that  American 
cities  are,  on  the  average,  increasing  far  more  rapidly 
in  population  than  is  the  case  in  Europe :  and  it 
follows  from  the  above-mentioned  considerations  that 
>  "Traction  and  Transmission,"  Hon.  R.  P.  Porter,  August  1902,  p.  221. 


CHAP.  V  ]     CORRUPTION  AND  PRIVATE  TRADE         127 

the  experience  of  tlie  United  States  must  not  be 
quoted  without  making  full  allowance  for  this  differ- 
ence when  used  as  an  argument  with  regard  to  our 
own  municipal  institutions.  Illegitimate  transactions 
between  Local  Authorities  and  private  proprietors 
concerning  concessions  might,  no  doubt,  take  place 
in  England ;  ^  but,  as  a  fact,  private  companies  have 
been  the  source  of  very  little  corruption  in  Europe, 
and  this  tends  to  confirm  the  view  that  the  diffi- 
culty arises  partly  from  the  extremely  rapid  gi'owth 
of  the  population  in  America. 

(34)  But  if  there  is  some  reason  to  think  that 
corruption  will  diminish  as  time  goes  on  if  municipal 
monopolies  remain  in  private  hands,  could  the  same 
forecast  be  made  if  municipal  trading  were  largely 
introduced  ?  Arguments  have  already  been  adduced 
which  tend  to  show  that  the  evils  due  to  the  direct 
employment  of  labour  are  cumulative,  and  tend  with 
time  to  increase  rather  than  to  diminish ;  and,  if 
these  views  are  accepted  as  sound,  the  two  systems 
form  a  marked  contrast  in  this  respect.  Moreover,  it 
can  be  shown  that  efforts  to  purify  JMunicipal  Govern- 
ments are  likely  to  have  more  permanent  results 
in  destroying  jobbery  in  connection  with  private 
companies  than  in  dealing  with  the  evils  which  spring 
from  the  direct  control  of  labour  by  municipalities. 
Representatives  must  seek  the  support  of  their 
constituents,  and  tlie  desire  to  control  tlie  votes  of 
rate-paid  voters  must  remain  as  a  standing  tempta- 
tion to  use  objectionable  influences ;  and  the  use  of 
objectionable  influences  for  ends  in  themselves  harm- 
less is  the  first  step  towards  corruption.  AVith 
regard  to  the  voters  in  the  pay  of  private  companies 

'  M.T.R.,  Q.  347. 


128       ADMINISTRATION  AND  COHHITrriON     [,hap.  v. 

the  case  is  different ;  for  the  employers,  thout^li  they 
liave  the  same  opportunities  of  influencing  votes,  do 
not  {le})end  on  their  employees  for  the  maintenance 
of  their  position.  If  a  municipality  becomes  suffi- 
ciently free  from  corruption  to  make  the  private 
owners  of  concessions  feel  that  they  have  little 
chance  of  using  their  "  voting  stock  '  for  corrupt 
ends,  all  temptation  is  gone,  and  the  organisations 
for  controlling  these  votes  will  cease  to  be  main- 
tained— organisations  which  are  not  easily  revived. 
Thus  the  existence  of  numerous  State-paid  voters 
tends  both  to  render  corruption  more  probable,  and, 
if  it  arises,  less  attackable. 

(35)  These  American  contentions  against  private 
enterprise  are,  moreover,  sometimes  weakened  by 
the  admission  that  Civil  Service  reform  is  necessary 
before  Municipal  Trade  can  be  extensively  introduced 
with  safety.  \Vith  regard  to  direct  employment  by 
municipalities,  it  has,  for  example,  been  stated  that, 
"  Civil  Service  reform  is  a  necessary  accompaniment, 
"  not  only  of  this,  but  also  of  every  other  municipal 
"  reform,"  and  that  "  without  it  no  one  but  profes- 
"  sional  politicians  can  seriously  advocate  the  day 
"  labour  system."  ^  But,  when  such  admissions  are 
made,  the  argument  tends  to  become  somewhat 
contradictory;  for  those  who  urge  that  Municipal 
Trade  is  necessary  as  a  cure  for  corruption,  cannot 
logically  add  that  corruption  must  first  be  cured 
by  Civil  Service  reform  without  which  ^lunicipal 
Trade  would  only  make  matters  worse. 

(3G)  The  laws  regulating  the  conditions  to  be 
imposed   on   private   companies   by   the   concessions 

»   Yak  Ecview,   "The    Day    Labour    and    Contract  Systems,"   J.   R. 
Commons,  vol.  v.  p.  445. 


CHAP,  v.]       CONCESSIONS  AND  CORRUPTION  129 

granted  to  them  may  have  a  most  important  effect 
in  checking  the  growth  of  corruption,  and  this 
subject  has  received  far  too  httle  attention  in  the 
United  States.  Concessions  have  been  given  '*  un- 
"  determinate  as  to  time  and  with  very  shght  pro- 
"  visions  as  to  State  or  municipal  control,"  ^  and 
virtually  no  administrative  control  has  in  many 
cases  been  exercised  over  private  companies,  whilst 
the  statutory  hmitations  on  prices  and  on  capitaliza- 
tion have  frequently  been  ignored.^  Complaints 
have  often  been  made  in  England  that  the  control 
exercised  by  Parliament  has  greatly  hampered  the 
growth  of  such  industries  as  electric  lighting.  This 
is,  no  doubt,  true ;  but  if  the  American  regulations 
had  been  somewhat  more  strict,  the  tendency  to 
corruption  would  have  been  considerably  diminished, 
and  the  delay  would  not,  I  believe,  have  been  too 
dearly  bought.  AVhen  concessions  giving  rights 
over  public  property  are  granted,  it  is  obvious  that 
the  probable  profits  to  the  private  owners  should  not 
be  more  than  sufficient  to  attract  the  capital  necessary 
for  all  legitimate  expenditure,  and  that  the  surplus 
value  should  go  to  the  public.  If  the  promoters 
are  prevented  by  suitable  regulations  from  making 
vast  sums  of  money,  the  temptation  to  bribery  and 
corruption  will,  without  doubt,  be  diminished.  The 
demoralising  influence  of  tlie  immense  value  of 
the  concessions  now  obtainable  by  corrupt  specu- 
lators in  the  United  States  points  to  tlie  advisal)ility 
of  lessening  those  prizes  rather  than  to  the  attempt 
to  purify  municipal  administration  by  adding  to  the 
functions  of  municipalities. 

*     Yale  Fcnnr^  C.  E.  Curtis,  yn\.  vi.,  May  1897,  ]..  19. 
-  "The  Gas  Commission  of  ilassachusetts,"  J.  H.  Gray,  Quart.  Journal 
of  Economics,  vol.  xiv.,  1899-1900,  p.  509. 

I 


130       ADMINISTRATION  AND  CORRUPllON    [cnAr.  v. 

(37)  Altliough  the  methods  of  regulating  the 
business  of  private  companies  owning  concessions 
will  be  discussed  in  a  subsequent  chapter,  it  may 
here  be  noted  that  the  troubles  under  discussion 
are  due  to  the  trades  in  question  tending  to  become 
monopolies.  Take,  for  example,  the  case  of  electric 
lighting  in  the  United  States.  After  one  company 
had  been  given  the  right  to  lay  its  cables,  a  similar 
concession  was  not  infrequently  granted  to  a  second 
company,  with  the  result  that  the  first  company  was 
squeezed  into  making  large  payments  to  the  second 
company  to  buy  it  out.  In  the  case  of  an  industry 
in  which  free  competition  is  possible,  no  restrictions 
should  be  placed  on  the  granting  of  concessions  ;  for 
in  these  circumstances  a  company  would  never  water 
its  capital  by  buying  up  a  second  concession  granted 
to  another  company,  because  there  could  be  no  assur- 
ance that  a  third  concession  would  not  be  granted. 
But  if  the  industry  is  one,  like  electric  lighting, 
where  a  partial  monopoly  is  certain  to  arise  from  the 
granting  of  any  concession,  then  it  is  better  that  no 
concession  should  in  any  circumstances  be  gi-anted 
to  a  second  company ;  for  experience  shows  that,  if 
two  companies  exist,  they  are  certain  to  amalgamate, 
that  competition  is  not  maintained,  and  that  the 
amalgamation  opens  the  road  to  various  kinds  of 
mischief  or  even  fraud.  If  concessions  in  the  United 
States  had  been  carefully  drawn  and  had  granted 
absolute  monopolies  for  considerable  periods  of  time 
over  fairly  large  areas,  the  bribery  and  corruption  in 
the  United  States  would  have  been  far  less  than  it 
has  been.  If  the  maxim  that  competition  should  be 
either  absolutely  free  or  entirely  forbidden  had  been 
followed,  much  evil  would  have  been  avoided. 


CHAP,  v.]      MUNICIPAL  TRADE  IN  AMERICA  131 

(38)  The  possibility  of  municipal  ownership  with- 
out municipal  management,  and  the  advantages  of 
such  a  system  as  regards  the  temptation  to  corruption, 
are  also  questions  which  have  received  far  too  little 
consideration  both  here  and  in  America.  It  is  true 
that  jobbery  as  to  leases  might  replace  jobbery  as  to 
concessions  ;  but  the  prizes  would  be  far  less  valuable, 
and  the  number  of  employees  paid  directly  by  the 
municipality  would  be  comparatively  small. 

(39)  The  corrupting  influence  of  private  enter- 
prise in  the  United  States  has  been  discussed  at 
some  length,  because  in  no  country  has  private 
enterprise  given  rise  to  more  municipal  fraud  and 
jobbery.  It  must  be  remembered,  however,  that 
municipal  trading  has  been  comparatively  little 
adopted  in  America,  and  this  alone  is  enough  to 
explain  why  the  amount  of  municipal  corruption 
directly  connected  with  it  is  far  less  than  that 
directly  connected  with  private  companies.  JNIore- 
over,  the  available  evidence  does  not  all  point  in 
one  direction.  For  example,  after  the  city  of 
Philadelphia  had  been  in  full  municipal  control  of 
its  gas-works  for  more  than  ten  years,  they  were 
leased  to  a  private  company,  which  then  undertook 
the  gas  supply  of  the  city.  A  great  deal  of  contro- 
versy has,  it  is  true,  been  aroused  by  this  transfer, 
some  objecting  to  it  on  the  ground  that  the  lease 
was  obtained  by  fraud,  whilst  others  declare  that 
the  abandonment  of  this  municipal  trade  was  the 
result  of  the  general  disbelief  in  city  management, 
and  the  outcry  raised  at  the  hiding  of  a  true  loss 
by  the  declaration  of  a  fictitious  profit  ^ 

1  "The  lease  of  the  Philadelphia  Gas- Works,"  W.  D.  Lewis,   Quart. 
Journal  of  Economics,  January  1898, 


132       ADMINISTRATION  AND  CORRUPTION     [chap.  v. 

(40)  It  is  no  doubt  unwise  to  speak  confidently 
about  the  affairs  of  a  foreign  country ;  but  the  fore- 
going considerations  appear  to  me  to  indicate  that 
the  extensive  introduction  of  Municipal  Trade  would 
tend  to  make  the  fight  against  corruption  in  America 
more  and  more  difficult  as  time  went  on.  If  this 
policy  were  adopted,  the  evil  would  become  more 
permanently  engrafted  on  to  the  municipal  system ; 
whereas  time  will  be  working  on  the  side  of  the 
municipal  reformer  in  attacking  abuses  connected 
with  the  quasi-monopolies  in  the  hands  of  private 
companies,  especially  if  proper  regulations  with 
regard  to  the  concessions  granted  to  them  are 
generally  introduced. 

(41)  Thus  American  corruption  should  not  be 
quoted  as  a  general  warning  against  the  private 
management  of  monopolies,  and,  as  regards  England, 
it  appears  to  me  that  it  is  especially  inapplicable. 
What  we  have  to  consider  with  regard  to  our  own 
country  is,  not  so  much  how  corruption  can  be 
eradicated,  but  rather  the  best  precautions  to  take 
to  prevent  its  introduction.  The  corrupt  influence 
of  private  companies  on  Municipal  Governments  is 
rarely  exercised  on  this  side  of  the  Atlantic.  It 
would  be  very  difficult  for  the  directors  of  gas- 
works, for  example,  to  influence  the  action  of  a 
Municipal  Council  either  by  bribery  or  by  the  aid 
of  the  votes  of  their  employees,  and  any  such  action 
on  their  part  would  be  regarded  as  a  gross  abuse,  a 
far  greater  abuse  than  the  attempt  on  the  part  of 
a  municipal  candidate  to  catch  the  votes  of  the 
municipal  employees  by  offering  them  better  terms  of 
employment.^     Such  promises,  it  will  be  felt,  are  not 

'  M.T.R.,  Q.  1564. 


CHAP,  v.]  CONCLUSIONS  133 

always  made  with  a  reprehensible  object  in  view : 
whereas  there  is  no  palliation  for  the  corrupt  action 
of  directors.  Judged  solely  from  the  point  of  view 
of  the  corrupting  effect,  the  retention  of  quasi- 
monopolies  in  the  hands  of  private  companies  in 
England  is  by  far  the  less  probable  source  of  evil, 
though  the  evil,  should  it  arise,  might  be  very 
bad ;  whilst  the  direct  employment  of  labour  by 
municipahties  is  the  more  probable  source  of  de- 
moralisation. It  is  a  balance  of  evils  and  proba- 
bilities ;  and  it  seems  to  me  that  if  that  balance 
be  fairly  made,  there  can  be  no  doubt  that  the 
possibility  of  bribery  and  "  deals  "  in  connection  with 
private  enterprises  should  not  be  used  as  the  basis 
of  an  argument  in  favour  of  municipal  trading  in 
England. 

(42)  To  sum  up  the  foregoing  discussion  with 
regard  to  corruption,  it  appears  that  any  increase  in 
the  practice  of  municipal  trading  adds  somewhat  to 
the  danger  of  corruption  arising.  Rate-paid  voters 
may  be  demoralised  by  the  temptation  to  give  their 
votes  on  personal  grounds,  and  not  with  the  view  to 
the  common  good.  The  patronage  in  the  gift  of  a 
municipality  must  be  increased  by  the  purchase  of 
any  private  enterprise ;  and  patronage  is  demoralising, 
because  it  affords  opportunities  for  the  illegitimate 
reward  of  party  services.  The  chances  of  scrupulous 
men  becoming  candidates,  or,  if  they  do  stand,  of 
being  elected,  are  lessened  by  the  extensive  direct 
employment  of  labour  by  the  municipality ;  and, 
as  the  purity  of  English  public  life  is  due  to  the 
willingness  of  men  of  high  moral  character  to  give 
their  services  to  the  State,  this  consideration  tells 
strongly  against    JMunicipal   Trade.      Jobbery  is  at 


134.       ADMINISTRATION  AND  CORRUPTION    [chap.  v. 

present  certainly  not  unknown  in  England ;  and, 
with  the  example  of  the  United  States  before  us,  the 
danger  of  its  degenerating  into  downright  corruption 
ought  to  tell  heavily  in  the  balance  when  weighing 
the  arguments  for  and  against  the  municipalisation 
of  any  industry. 

(43)  No  doubt,  every  case  should  be  considered 
separately  on  its  own  merits.  Where  the  advantages 
are  great,  there  it  is  legitimate  to  run  some  risks ; 
and  the  fewer  the  men  taken  into  direct  municipal 
employment,  the  less  will  be  the  risks  to  be  run.  In 
the  case  of  water-works  the  number  of  employees  is 
not  great,  and  the  danger  of  corruption  should  be 
allowed  to  tell  but  little  in  opposition  to  genuine 
considerations  based  on  the  demands  of  public  health. 
INIunicipal  tramways  might  be  laid  down,  and  the 
whole  of  the  roadway  kept  in  repair  by  the  public, 
without  great  additions  being  made  to  the  number  of 
rate-paid  voters ;  and  no  strong  opposition  should 
therefore  be  raised  on  these  grounds  to  such  a 
proposal.  It  is  against  any  scheme,  such  as  that 
which  would  result  in  the  whole  of  the  tramway 
employees  being  paid  by  municipalities,  that  the  tore- 
going  arguments  tell  with  great  weight.  To  add 
very  gi-eatly  to  the  number  of  voters  in  the  pay  of  the 
State  in  England  would  be  a  public  misfortune. 

(44)  Thus,  in  considering  the  general  effect  of 
Municipal  Trade  on  local  administration,  we  have,  on 
the  one  hand,  its  undoubted  tendency  to  stimulate 
the  interest  of  the  public  in  civic  affairs  ;  and,  on 
the  other  hand,  the  suspicion  and  discontent  created 
against  JMunicipal  ^Vuthorities.  cliiefly  amongst  certain 
sections  of  the  trading  community ;  the  evil  effects 
of  the  increased  labour  thrown  on  Local  Authorities  ; 


CHAP,  v.]  CONCLUSIONS  135 

and,  above  all,  the  increased  probability  of  municipal 
corruption  arising  where  there  are  many  voters  in  the 
pay  of  the  municipality.  In  fact,  as  regards  the 
question  of  administration,  the  balance  of  advantages 
and  disadvantages  tells  heavily  against  INIunicipal 
Trade. 


VI 


PUBLIC    AM)    run  ATE    MANAGEMENT 


(1)  The  question  which  is  most  frequently  asked 
with  regard  to  Municipal  Trade  is  whether  it  pays 
or  not,  or,  in  other  words,  whether  taxation  is  likely 
to  be  reduced  or  increased  by  its  introduction. 
Before  attempting  to  extract  an  answer  to  this 
enquiry  from  available  statistics,  it  will  be  as  well 
to  discuss  the  circumstances  w^hich  tend  to  make 
management  in  public  enterprises  either  more  or 
less  economical  and  efficient  than  management  in 
private  trades.  The  comparison  in  England  is 
usually  that  between  Municipal  Councils  and  Boards 
of  Directors ;  and,  in  making  this  comparison,  it  is 
necessary  to  contrast  the  extent  of  the  field  of 
choice  from  which  these  bodies  may  be  selected, 
the  method  of  their  selection  from  these  fields,  and 
the  effect  on  the  management  of  their  business  of  the 
various  influences  brought  to  bear  on  the  managers 
during  the  performance  of  their  duties.  In  other 
countries,  and  in  exceptional  cases  hi  England,  the 
contrast  presents  itself  in  some  other  form ;  but  the 
comparison  between  councillors  and  directors  will 
lead  to  general  conclusions  applicable  with  but 
little  modification  to  all  comparisons  between  pubhc 
and  private  trades. 

(2)  First,  then,  as   to   the   field   of   choice  from 


136 


CHAP.  VI.]  BOARDS  COMPARED  WITH  COUNCILS      137 

which  councillors  and  directors  may  be  chosen. 
Artificial  barriers  affecting  the  selection  have  httle 
real  influence  in  the  case  of  directors ;  for  the 
difficulty  of  purchasing  qualifying  shares  does  not 
often  actually  prevent  any  one  from  joining  a  Board. 
On  the  other  hand,  the  residential  or  property 
qualiffcation  of  candidates  restricts  the  choice  of 
councillors  to  a  material  extent,  especially  in  small 
towns  where  it  often  makes  it  impossible  to  include 
on  the  body  managing  a  municipal  trade  any  single 
individual  having  special  experience  in  the  particular 
industry  in  question.  Corporations  generally  con- 
tain more  members  than  Boards,  and  this,  no  doubt, 
widens  the  choice  in  the  case  of  councillors ;  but 
this  advantage  brings  with  it  the  corresponding 
disadvantage  that  Corporations  have  to  delegate 
nearly  all  their  trading  business  to  subordinate 
committees,  thus  introducing  inevitable  delays.  No 
doubt,  also,  there  are  some  men  who  prefer  the 
unpaid  duties  of  a  councillor  to  the  salaried  position 
of  a  director.  iNlany  more  persons,  however,  are 
influenced  in  the  opposite  direction,  and  it  can 
hardly  be  denied  that  the  search  for  candidates  for 
seats  on  Municipal  Councils  is  more  often  attended 
with  difficulties  than  is  the  search  for  persons  willing 
to  serve  on  Boards.  In  fact,  as  compared  with 
directors,  the  field  of  selection  for  councillors  un- 
doubtedly contains,  as  a  rule,  fewer  really  capable 
men  of  business.  The  restrictive  effect  of  residential 
qualifications,  whether  legal  or  customary,  is  especially 
objectionable ;  for  such  a  barrier  makes  it  less 
probable  that  the  experience  gained  in  one  locality 
wiU  be  transmitted  to  another;  an  important  point 
when   it   is   remembered  that   experience   means   in 


1558     PITBLIC  AND  PRIVATE  MANAGEMENT  [chap.  vi. 

large  measure  the  actual  knowledge  of  blunders 
already  committed,  blunders  which  may  be  com- 
mitted again  without  such  knowledge.  But,  if  the 
field  for  selection  is  wider,  it  is  true  that  the  motive 
which  induces  men  to  wish  to  join  Directorates  is, 
as  a  rule,  merely  the  desire  for  remunerative  work ; 
whereas  the  would-be  councillors  are  largely  in- 
fluenced by  higher  and  more  disinterested  motives. 
The  contrast  is  therefore  between  private  trade, 
with  a  wide  field  for  the  selection  of  its  managing 
bodies  from  amongst  business  men  actuated  by 
mere  business  motives,  and  INIunicipal  Trade,  with 
a  narrower  field  of  choice,  at  all  events  as  regards 
business  men,  the  majority  of  those  willing  to  serve 
being,  however,  actuated  by  higher  motives. 

(3)  Passing  on  to  consider  the  methods  of 
making  the  choice  from  amongst  those  willing  to 
serve,  it  has  been  said  that  "the  shareholders  of  an 
"  ordinary  public  company  are  a  widely  scattered 
"  body,  knowing  nothing  at  first  hand  either  about 
"  each  other  or  about  the  business  of  the  company ; 
"  whereas  the  electors  in  a  locality  are  each  other's 
"  neighbours,  and  have  the  results  of  the  working 
"of  the  municipality  immediately  before  their  eyes 
"  every  day  of  their  lives.  Consequently,  the 
"  electors  in  a  locality  are  able  and  willing  to  exer- 
"  cise  far  more  influence  than  the  shareholders  in 
"a  company."^  Putting  aside  for  consideration  at 
a  later  stage  the  question  whether  the  financial 
results  of  JNIunicipal  Trade  can  be  said  to  be 
clearly  before  the  eyes  of  the  ratepayers  at  any 
time,  this  would  appear  to  point  to  the  probable 
superiority  of  Corporations  as  bodies  for  managing 

Economic  Journal,  Prof.  E.  Cannan,  March  1899,  p.  2. 


CHAP.  VI.]       COUNCILLORS  AND  DIRECTORS  139 

local  business  affairs.  On  the  other  hand,  it  might 
be  stated  that  shareholders  have  no  other  object  in 
view  in  the  creation  of  their  Board  than  the  selection 
of  the  best  men  of  business,  and  that  their  choice 
as  regards  this  class  being  much  less  restricted, 
they  should  be  able  to  secure  a  far  more  competent 
managing  body.  In  order  to  consider  the  weight 
to  be  attached  to  such  opposing  claims  as  these, 
the  actual  working  of  the  elections  in  the  two 
cases  must  be  examined  carefully.  As  to 
directors,  they  are  in  truth  practically  never 
elected  by  the  shareholders,  being  either  nominated 
by  the  original  promoters,  or  selected  or  co-opted 
by  an  existing  Board.  Herein  lies  both  the  strength 
and  the  weakness  of  the  existing  system  of  private 
trade.  When  a  Board  contains  some  members 
fairly  well  acquainted  with  the  business  to  be 
managed,  or  when  the  business  is  in  a  flourishing 
condition,  personal  friendship,  family  ties,  and  neigh- 
bourly feeling,  amounting  almost  to  a  residential 
qualification  in  the  case  of  small  towns,  count  for 
a  great  deal  in  the  filling  of  vacancies ;  and  the 
result  is  the  election  of  a  considerable  proportion 
of  incompetent  directors.  I  wish  I  could  see  a 
remedy  for  this  evil,  or  even  a  general  desire  to 
see  it  remedied.  When,  however,  a  Board  does 
not  contain  experienced  men  of  business,  or  when  a 
want  of  strength  in  any  respect  is  felt,  there  is  little 
difficulty  in  adding  directors  of  the  right  stamp ; 
and  in  these  circumstances,  out  of  self-interest,  a 
Board  will  usually  strengthen  itself  in  this  way,  a 
strengthening  which  will  always  meet  with  the 
approval  of  the  shareholders.  As  to  town  councillors, 
on    the    other    hand,    however    great    the    interest 


140    PUBLIC  AND  PRIVATE  MANAGEMENT   [chap.  vi. 

shown  by  ratepayers  in  the  elections  may  be,  it 
may  make  the  selection  of  men  specially  qualified 
to  manage  a  particular  industry  less  rather  than 
more  probable,  unless  it  is  specially  directed  towards 
securing  that  end,  which  is  seldom  the  case. 
Political  considerations  are  generally  all  important, 
and  where  the  political  party  which  is  not  the 
predominant  one  contains  within  its  ranks  the 
majority  of  the  men  of  business,  the  chances  of 
an  adequate  number  of  such  men  being  included 
in  any  body  managing  a  municipal  trade  become 
very  remote.  Representative  institutions  ought  to 
contain  men  of  all  classes ;  but  some  of  these 
classes  will  contain  few  men  useful  for  managing 
trades ;  because,  with  rare  exceptions,  it  is  only 
those  who  have  had  actual  responsibility  in  matters 
of  business  comparatively  early  in  life  who  ever 
become  eflicient  business  managers.  The  improba- 
bility of  Local  Authorities  containing  a  considerable 
proportion  of  such  men  is  not  only  due  to  the  in- 
fluence of  party  politics  in  local  elections,  but  also 
to  _^the  fact  that  personal  popularity  and  pleasant 
manners  count  for  far  more  than  business  capacity 
at  local  elections. 

(4)  The  method  of  re-election,  and  the  con- 
sequent length  of  service  of  its  members,  is  another 
important  factor  in  determining  the  business  capacity 
of  any  managing  body.  To  introduce  new  bloo 
is  often  useful ;  but  to  retain  the  services  of  men 
of  business  habits  and  experience  for  long  periods 
is  essential.  Enough  vacancies  will  occur  naturally 
if  members  do  not  cling  to  office  after  age  has 
taken  away  their  vigour  and  powers  of  initiative ; 
and,  granted  a  reasonable  age  for  retirement,  it  would 


CHAP.  VI.]       COUNCILLORS  AND  DIRECTORS  141 

only  be  necessary  that  vacancies  should  be  filled 
with  regard  to  no  other  considerations  than  the 
conduct  of  the  business.  Both  Councils  and  Boards, 
if  regarded  as  business  machines,  are  very  faulty  in 
these  respects.  Directors,  however  incompetent,  are 
apt  to  be  retained  in  their  seats  from  personal 
motives,  and  Boards  not  infrequently  drift  into  a 
state  of  inefficiency.  Ratepayers,  on  the  other  hand, 
are  extremely  unlikely  to  take  steps  to  prevent  the 
re-election  of  a  councillor  simply  on  the  grounds 
of  his  incompetence  in  matters  of  business.  But 
councillors,  unlike  directors,  are  frequently  re- 
placed in  the  managing  body  on  account  of  causes 
which  have  no  connection  whatever  with  their 
business  capacity.  Either  they  retire  voluntarily 
after  a  short  period  of  service,  having  nothing  to 
lose  by  so  doing;  or  a  change  of  political  opinion 
in  particular  wards  leads  to  the  rejection  of  willing 
and  experienced  councillors  ;  or  even  without  many 
changes  amongst  the  councillors  themselves,  .slight 
changes  in  the  balance  of  parties  in  Councils  lead 
to  changes  in  the  composition  of  managing  com- 
mittees. In  short,  if  there  is  too  much  continuity 
in  Boards,  there  is  certainly  too  much  change  in 
Councils  and  committees  of  Councils.  Thus, 
whether  we  look  to  questions  connected  with 
elections  or  with  re-elections,  we  are  evidently 
comparing  the  workings  of  two  very  imperfect 
machines ;  and  it  is  little  to  be  wondered  at  that 
results  are  very  different  at  different  times  and 
places,  and  that,  as  a  consequence,  divergent 
opinions  are  held  as  to  which  system  is  best.  At 
Birmingham,  in  the  days  of  JMr  Chamberlain's 
mayoralty,  the  Council  was  certainly  an  admirable 


142     PUBLIC  AND  PRIVATE  MANAGEMENT  [chap.  vi. 

business  machine,  its  committees  comparing  favour- 
ably witli  any  IJoard  of  Directors ;  frequently  tiie 
T^ocal  Authorities  and  the  Boards  of  the  gas  and 
water  companies  in  the  same  locality  are  composed 
of  much  the  same  elements ;  ^  but,  in  my  opinion, 
not  only  should  we  expect  to  see,  but  we  do 
actually  find  that  on  the  average  Boards  of 
Directors  contain  a  decidedly  greater  proportion 
of  efficient  men  of  business  than  do  either  Town 
Councils  or  their  managing  committees. 

(5)  Even  more  important  than  the  composition 
of  these  managing  bodies  is  the  effect  on  the  way 
in  which  they  manage  their  affairs  of  the  various 
influences  which  are  likely  to  be  brought  to  bear 
on  them  in  the  performance  of  their  duties.  The 
most  important  functions  of  Boards,  and  of  Councils 
as  regards  the  management  of  their  trades,  are  the 
selection  of  the  enterprises  to  be  undertaken,  the 
appointment  and  control  of  the  staff  to  superintend 
them,  and  all  decisions  on  questions  of  general 
policy.  The  way  in  which  each  of  these  duties 
will  be  performed  depends  largely  on  the  influences 
under  consideration. 

(6)  In  considering  the  commercial  value  of  the 
enterprises  likely  to  be  undertaken  by  I^ocal 
Authorities,  the  influence  first  to  be  considered  is 
that  arising  from  the  fact  that  the  same  rate- 
payers who  elect  the  managing  body  are  also  the 
consumers  of  the  goods  sold  by  them  or  li.c 
tra^•ellers  on  the  tramways  worked  by  them ;  an 
influence  which  crops  up  over  and  over  again  in 
all  discussions  on  Municipal  Trade.  Councillors 
are    no    doubt    anxious    to    protect    the   ratepayers 

»  M.T.R.,  g.  312G. 


CHAP.  VI.]    UNREMUNERATIVE  ENTERPRISES  143 

by  whom  they  are  elected  from  any  increase  of 
taxation ;  but  they  may  be  even  more  anxious  to 
meet  other  and  antagonistic  demands  made  by 
their  constituents.  Taking  the  case  of  tramways 
as  an  example,  few  ratepayers  will  look  closely 
to  the  possible  effect  on  taxation  of  any  further 
developments  of  existing  tramway  systems :  whilst 
those  voters  who  live  on  undeveloped  routes  will 
be  keenly  alive  to  the  benefits  which  they  w^ould 
experience  if  cheap  municipal  trams  were  made 
to  run  past  their  doors.  No  wonder,  then,  that 
under  such  influences  I^ocal  Authorities  are  found 
promoting  tramway  schemes  in  districts  where 
they  "  cannot  hope  to  get  a  profit."  ^  This  dis- 
regard of  financial  considerations  may  be  justifiable 
where  municipal  enterprises  are  undertaken  on  the 
grounds  of  public  health,  order,  or  morality ;  but 
it  cannot  be  denied  that  constituents  will  often 
use  a  powerful  influence  in  inducing  councillors 
to  undertake  trading  enterprises  which  would  be 
rejected  by  directors  as  not  being  sufficiently 
remunerative. 

(7)  Municipalities  may  also  adopt  views  as  to 
the  selection  of  commercial  enterprises  different 
from  those  which  would  be  adopted  by  private 
Boards  because  of  the  greater  ease  with  which 
municipal  capital  can  be  raised.  The  Local  Govern- 
ment Board  puts  certain  impediments  in  the  way 
of  unwise  municipal  expenditure ;  but,  when  once 
that  barrier  is  passed,  municipalities  can  raise 
money  for  risky  enterprises  with  precisely  the  same 
facility  as  they  can  for  sound  commercial  concerns. 
On  the  other  hand,  the  difficulty  of  raising  capital 

»  M.T.R.,  Q.  4142. 


144     PT^UJC  AND  PRIVATE  MANAGEMENT  [chap.  vi. 

in  private  commerce  increases  with  the  risk  to  be 
rim,  and  acts  like  an  automatic  fyovernor  in  check- 
ing rash  ventures  in  private  trade.^  As  Municipal 
Trade  has  no  such  automatic  governor.  Local 
Authorities  are  certain  at  times  to  be  found 
entering  on  fields  where  the  private  trader  would 
not  dare  to  tread. 

(8)  It  is,  however,  possible  that  this  same  facility 
for  raising  money  may  sometimes  act  in  the 
contrary  way,  and  make  Local  Authorities  exces- 
sively cautious.  If  a  Town  Council  can  borrow 
money  at  less  than  3  per  cent.,  many  councillors 
will  feel  an  instinctive  dislike  to  investing  the 
money  thus  raised  in  an  enterprise  which  might 
fail  altogether  or  which  might  bring  in,  say,  10 
per  cent.  Such  a  dislike  would  be  thoroughly 
justifiable;  for  the  risk  in  ISIunicipal  Trade  is 
throwTi  compulsorily  on  all  the  ratepayers  and 
indirectly  on  nearly  all  the  inhabitants,  many  of 
whom  are  not  even  voters ;  and  this  cannot  be 
right  if  the  risk  of  loss  is  great.  Local  Authorities 
might  reasonably  hesitate  to  act  like  the  New  York 
Metropolitan  Railway,  which  "scrap-heaped  a  good 
"  cable  plant  worth  over  a  million  sterling,  because 
"  it  stood  in  the  way  of  electrical  progress  "  ;  ^  and  the 
hesitancy  of  councillors  should  not  necessar/  '  stand 
condemned  even  when  subsequent  events  prove 
that  the  venture  embarked  on  was  sound  from  an 
economical  point  of  view. 

(9)  This  same  possibly  wise,  but  certainly  un- 
economical, caution  may  also  be  the  result  of  the 
\'arious  other  causes  which  always  sap  the  initiative 

•  M.T.R.,  Q.  2601. 

2  Times,  5th  September  1902. 


CHAP.  VI.]  WANT  OF  INITIATIVE  145 

of  representative  bodies.  Councillors  have  no 
personal  motive  to  induce  them  to  take  the  risks 
which  almost  inevitably  accompany  progress ;  and 
they  are,  in  general,  more  afraid  of  losing  their 
seats  than  directors,  a  fear  which  may  lead  to  un- 
due caution  as  well  as  to  extravagance.  Questions 
brought  before  Local  Authorities  may  be  un- 
necessarily dragged  into  the  field  of  party 
politics,  and  not  only  does  this  lead  to  economical 
schemes  being  unjustly  attacked,  but  also  to  an 
unwise  caution  from  the  fear  of  such  attacks. 
Corporations,  being  larger  bodies  than  Boards, 
generally  find  it  necessary  to  have  all  proposals 
first  discussed  in  committee,  and  then  rediscussed 
in  full  council ;  with  the  result  that  the  less  well 
qualified  and  larger  body  may  upset  the  decisions 
of  the  better  informed  and  smaller  body.  In- 
decision may  result  even  in  committees  from  the 
want  of  a  thorough  knowledge  of  the  industry  to 
be  managed.  When  the  Corporation  of  Glasgow 
took  over  the  tramways  in  1894,  the  horse  system 
of  traction  was  maintained  for  several  years.  Mr 
R.  P.  Porter  tells  us  that  "  naturally  the  business- 
"  like  American  asks  the  question,  Why  did  Glasgow 
"  commit  this  act  of  folly  ? "  and  answers  it  by 
asserting  that  it  was  "  because  the  Town  Com- 
"  mittee  of  twenty-five  members  could  not  agree 
"  on  a  system  of  mechanical  motor."  ^  As  a  fact, 
companies  now  originate  nearly  everything  that 
is  new  in  industry,  and  Corporations  seldom  go 
beyond  buying  up  the  successful  ventures  of 
private    proprietors.     All   history   teaches   the   want 

1  "Report    of    Special  Committee  on   Street    Railway    Compauies," 
Massachusetts,  1898,  p.  213. 

K 


U6     PUBLIC  AND  PRIVATE  MAxNAGEMExNT   [chap.  vi. 

of  initiative  of  State  institutions ;  and,  unless  Muni- 
cipal Governments  are  an  exception  to  the  rule, 
Municipal  Trade  must  often  suffer  from  progi'ess 
not  befng  made  at  the  right  moment. 

(10)  Another  circumstance  which  tends  to  make 
enterprises  undertaken  by  municipalities  less  re- 
munerative than  those  undertaken  by  companies  is 
the  existence  of  Local  Government  areas.  These 
areas  are  often  too  small  for  business  purposes,  and 
are  not  divided  .  fi'om  each  other  by  what  may  be 
termed  natural  business  boundaries.  For  example, 
the  economy  resulting  from  large  central  power 
stations  for  electric  supplies  is  being  more  and 
more  recognised ;  and  where  there  are  several 
small  urban  districts  near  together,  and  where 
each  Local  Authority  undertakes  to  supply  its 
own  area,  the  result  must  be  far  less  economical 
than  if  the  whole  of  the  districts  were  served  by 
one  body  from  one  central  station.  INIoreover,  if 
different  Corporations  establish  works  in  different 
areas,  they  are  likely  to  adopt  different  systems 
in  the  case  of  telephones,  for  example,  or  different 
gauges  in  the  case  of  tramways ;  and,  wherever 
this  is  the  case,  subsequent  amalgamations  will 
necessitate  costly  reconstructions,  with  the  result 
that  more  capital  will  be  expended  than  would  have 
been  required  had  the  whole  been  on  one  system 
from  the  first.  Thus  I^ocal  Authorities,  who  are 
obviously  likely  to  confine  their  operations  to  the 
areas  administered  by  themselves,  have  to  face 
difficulties  which  are  less  felt  by  Boards  of  Directors, 
who  are  little  influenced  in  originating  their  under- 
takings by  artificial  boundaries. 

(11)  There  are,  no  doubt,  two  expedients  by  means 


CHAP.  VI.]    JOINT  BOARDS  OF  MANAGEMENT  147 

of  which  the  area  served  by  a  municipal  trade  may- 
be enlarged ;  that  is  by  two  or  more  municipalities 
combining  together  to  manage  some  industrial 
concern  in  their  combined  areas,  or  by  one 
municipality  carrying  its  trading  operations  over  its 
border  into  the  territory  of  its  neighbour.  Both 
these  methods  must  be  briefly  examined  in  so  far 
as  they  are  likely  to  affect  the  enterprises  under- 
taken by  Local  Authorities.  As  regards  the  first 
alternative,  that  is  the  combined  working  by  different 
municipalities,  this  necessitates  the  appointment  of 
some  body  by  the  Local  Authorities  concerned  to 
manage  the  whole  business.  Any  Joint  Board 
thus  appointed  will  usually  be  less  progressive  even 
than  a  Corporation  ;  for  each  of  its  members  will 
know  that  all  its  decisions  are  liable  to  be  redis- 
ciissed  in  the  council  nominating  him,  even  when 
it  is  not  necessary  to  obtain  the  actual  consent  of 
that  council,  a  consent  which  probably  would  be 
required  as  regards  the  more  important  decisions. 
It  is  perhaps  more  important  to  note  that  combined 
trading  of  this  kind  will  be  rarely  undertaken  unless 
the  Corporations  concerned  are  forced  to  combine 
by  Parliament.  We  have  seen  that  different  systems 
may  be  established  in  different  areas ;  and,  taking 
the  case  of  tramways  with  different  gauges  as 
an  example,  if  these  systems  are  to  be  amalga- 
mated, one  locality  at  least  must  submit  to  the 
inconvenience  of  having  its  roads  pulled  up  during 
the  necessary  period  of  reconstruction.  Again,  when 
proposed  new  alternative  routes  are  not  equally 
advantageous  for  the  inhabitants  of  different 
Local  Government  areas,  some  localities  preferring 
one,   and   some   another,    the    selection    of    one  of 


148     rUHLIC  AND  TRIVATE  MANAGEMENT   [chap.  vi.        -J 

these  routes  must  injuriously  affect  some  one  of  the 
locaUties  concerned.     Local  iVutliorities  are  apt  never 
to    "  deal  with  these   questions  except   as   they  are 
"  concerned   themselves  with  them  "  ;  ^    and  in  such 
cases  many  municipalities  would  strenuously   resist 
any  change  which  might  lead  to  their  constituents 
being   even    temporarily    incommoded ;    an    obstacle 
to  amalgamation  which  would   not   be   experienced 
by  private  companies,  because  directors  would  con- 
sider the   matter   solely  from  the  point  of  view  of 
the  economic  working  of  the  whole.     Other  causes, 
such   as   local  jealousies,  and   the   not   unreasonable 
fear   that   great    difficulties    would    be    experienced 
in  such  joint  operations  in  the  allocation  of  capital 
to   the    different    districts    and    in    the   sharing    of 
profits   and    losses    amongst    them,    will    also    tend 
to     hinder     the     formation     of     Joint      JNlunicipal 
Trading     Boards.     These    difficulties     in    the     way 
of  municipal  amalgamations,  as  well  as   the  incon- 
venience   arising    from    imsuitable     business    areas, 
may  be  illustrated  by  the  following  (juotations  from 
"  Traction  and  Transmission."     Tlie  first  deals  with 
electric  traction  in  Manchester  and  Salford.    "  These 
"two  Councils  are   [11)01]   in    antagonism    over   the 
"terms   and    conditions  that  are  to  apply  when  the 
"  cars  of  one  authority  run  into  the  district  and  on 
"  the  rails  belonging  to  the  other.     The  Salford  cars 
"  now   stop   on,   or   near    to,   the   boundary  of  the 
"  borough,  and   the  public   have  to  walk  some  400 
"yards  before  they  can  join  the  Manchester  cars."'" 
Again.    "  between    the     boundaries    of    Leeds    and 
"  liradfoid    there   lies    a  strip    of   country    2    miles 

1  M.T.R.,  Q.  1199. 

2  "Traction  and  Trausiuission,"  September  1901,  p.  27. 


CHAP.  VI.]         LOCAT.  GOVERNMENT  AREAS  149 

"  in  width.  Alive  to  the  advantages  of  tramway 
"  intercommunication,  each  Corporation  desired  to 
"  extend  its  electric  tramways  to  the  boundary  of 
"  the  other ;  but  a  difficulty  arose  owing  to  the  fjict 
"  that  "  the  gauges  were  different.  The  negotiation 
on  the  matter  "having  come  to  naught,  each 
"  Corporation  promoted  a  bill  in  Parliament  in  1899 
"  with  a  view  to  obtaining  powers  to  extend  their 
"  tramways  to  the  confines  of  the  other  city."  ^  In 
short,  private  companies  will  experience  less  difficulty 
than  Corporations  in  amalgamation,  and  Municipal 
Trade  is  therefore  more  likely  than  private  trade 
to  be  confined  to  unsuitable  areas. 

(12)  The  difficulties  attending  combined 
action  and  the  necessity  for  larger  business 
areas  have  frequently  led  to  large  municipalities 
pushing  their  trading  operations  over  their  borders 
without  giving  any  share  in  the  management  to 
the  Local  Authorities  whose  territories  are  thus 
invaded.  This  external  trading  can  hardly  ever 
be  undertaken  if  the  outside  Local  Authorities 
have  already  commenced  similar  operations  them- 
selves ;  and  it  is  generally  only  possible  where 
the  invaded  Local  GoA^ernment  area  is  not 
large  enough  to  enable  the  industry  in  question 
to  be  profitably  established  for  the  sake  of  serving 
it  alone,  and  where,  consequently,  its  inhabitants 
have  practically  only  the  choice  ])etwecn  being 
served  by  the  large  neiglibouring  Corporation  or 
not  being  served  at  all.  But,  as  has  already 
been  remarked,  a  district  which  has  to  look  to 
a    representative     body    elected     by    another     con- 

1  "Tractiou  and  Transmission,"  W.  Valentine  Ball,  November  1901, 
p.  162. 


150     PUBLIC  AND  PRIVATE  MANAGEMENT   [chap.  vi. 

stituency  for  its  supplies  of  gas,  water,  electricity, 
etc.,  is  seldom  thoroughly  satisfied  with  the 
arraugemeut,  and  tliis  external  trading  cannot  be 
so  progressive  as  it  would  be  without  this  cause  of 
friction.  The  effect  is  especially  harmful  in  the 
case  of  tramways,  which  ought  in  many  cases, 
both  on  social  and  on  economic  grounds,  to  be 
pushed  boldly  into  the  country,  a  policy  more 
likely  to  be  adopted  by  companies  than  by  Cor- 
porations, because  progi*ess  in  private  trade  is  little 
hindered  by  the  difficulty  of  crossing  boundaries. 
Thus  for  all  the  foregoing  reasons — that  is,  because 
Local  Government  areas  may  be  small  and  incon- 
venient, because  of  the  expense  of  subsequent  amal- 
gamations, and  because  of  the  difficulty  of  managing 
trading  operations  by  Joint  Boards  or  in  outside 
areas — we  see  that  enterprises  undertaken  by  muni- 
cipalities will  be  less  likely  to  be  framed  on  business 
lines  than  those  undertaken  by  private  companies. 

(13)  If  the  estimated  profits  of  a  commercial 
enterprise  are  small,  it  is  necessary  to  ascertain 
before  undertaking  it  that  the  risk  is  also  small ; 
or,  in  other  words,  the  magnitude  of  probable 
profits  should  be  in  proportion  to  the  chances  of 
loss.  No  commercial  nation  can  advance  without 
losses  being  constantly  made ;  but,  if  the  foregoing 
principle  be  adhered  to,  new  ventures  will,  on  the 
average,  justify  the  necessary  capital  outlay.  In 
private  trade  the  difficulty  of  raising  capital  is 
more  or  less  in  proportion  to  the  risks  involved. 
Where  the  risk  is  considerable,  directors  may  be 
induced  by  the  possibility  of  large  profits  to  face 
the  dangers ;  and  such  a  proceeding  may  be 
perfectly   justifiable    if   the    shareholders   are    fully 


CHAP.  VI.]  SUPERINTENDING  STAFF  151 

informed  as  to  the  risks,  or  if  those  risks  are 
covered  by  reserve  funds.  On  the  other  hand,  we 
have  seen  that  the  influences  due  to  voters  being 
also  consumers,  to  the  facility  of  raising  municipal 
loans,  to  the  fact  that  unwilling  ratepayers  cannot 
avoid  the  risks  involved,  and  to  questions  connected 
with  Local  Government  areas,  all  tend  in  Municipal 
Trade  to  divorce  this  connection  between  profit 
and  risk.  If  the  matter  be  regarded  from  a  strictly 
commercial  point  of  view,  it  appears  therefore  on 
the  whole  that  Corporations  are  less  likely  than 
Boards  to  invest  their  capital  judiciously,  because 
they  are  more  likely  to  be  cautious  when  they 
ought  to  be  venturesome,  or  to  be  rash  when  they 
ought  to  be  cautious ;  and,  if  this  be  the  case,  even 
if  in  other  respects  the  management  be  the  same, 
the  average  return  on  capital  must  be  less  in 
Municipal  Trade  than  in  private  trade. 

(14)  Of  the  above-mentioned  important  duties 
which  have  to  be  attended  to  by  bodies  managing 
trades,  the  next  to  be  discussed  will  be  the  appoint- 
ment of  the  superintending  staff;  and  in  connection 
with  this  subject  we  have  to  consider  the  way  in 
which  the  various  influences  at  work  in  municipal 
and  private  enterprises  are  likely  to  affect  the 
management  in  so  far  as  it  depends  on  this  staff. 
The  selection  of  the  various  employees  is  probably 
conducted  on  much  the  same  lines  in  the  two  cases, 
favouritism  always  producing  some  injurious  results. 
The  main  element  affecting  the  quality  of  the 
candidates  presenting  themselves  for  selection  is  the 
pay  offered,  and  here  we  clearly  see  the  result  of  the 
different  influences  under  consideration.  Directors 
will   be   ready   to    increase    salaries    to   any   extent 


152     PUBLIC  AND  PRIVATE  MANAGEMENT   [chap.  vi. 

so  long  as  they  believe  that  the  gross  profits  will 
be  increased  to  an  even  greater  extent  on  account 
of  the  superior  ability  of  the  staff  thus  obtainable ; 
and  there  is  no  reason  to  doubt  that  they  can  tell 
with  fair  accuracy  what  is  in  the  true  interests  of 
their  shareholders  in  this  respect.  As  to  ISIunicipal 
Trade,  on  the  other  hand,  the  less  business-like 
councils  will  find  it  more  difficult  to  estimate  with 
confidence  the  advantages  likely  to  be  derived  from 
the  employment  of  highly  paid  officials,  and  will 
in  some  cases  altogether  fail  to  recognise  that  there 
are  any  such  advantages ;  and  popularity  amongst 
voters  may  often  be  won  by  councillors  by  opposing 
the  award  of  large  salaries,  whilst  few  votes  will 
thus  be  lost.  The  result  of  these  conditions  is  that 
there  is  a  distinct  tendency  in  popularly  elected 
bodies  to  give  a  lower  rate  of  pay  to  high  officials 
than  that  usually  given  in  private  trades ;  the  more 
important  the  position,  the  more  noticeable  being 
this  intention  to  "jealously  control  the  increase  of 
'*  larere  salaries."  ^  We  hear  of  socialistic  councillors 
"  working  harmoniously  and  effectively  together  .  .  . 
"  against  any  increase  being  made  on  officials'  salaries 
"  so  long  as  the  standard  rate  of  wages  was  not  paid 
"to  labourers,"  without  apparently  in  the  least  per- 
ceiving that  the  working  classes,  as  well  as  all 
other  classes,  will  suffer  from  any  inferiority  in 
the  management  of  municipal  trades."  The  same 
influences  are  clearly  noticeable  out  of  England. 
In  Canada  "  it  is  not  the  custom  to  pay  any  civic 
"  servant  such  a  remuneration  as,  for  example,  many 

'  "London  Progressive  Platform,"  1892;  " Municipal  Government  in 
Great  Britain,"  Shaw,  p.  352. 
•■i  Times,  8th  September  1902. 


CHAP.  VI.]  SALARIES  OF  STAFF  153 

"  bank  managers  obtain.  ...  It  thus  happens  that 
"  private  concerns  pay  less  salaries  to  begin  with,  and 
"  offer  greater  prizes  in  the  end,  than  public  depart- 
"  ments."  ^  In  the  United  States  "  the  executive 
**  positions  in  private  companies  often  command 
"  better  pay  than  similar  ones  under  public  ownership, 
"but  in  the  long  run,"  the  same  author  adds,  "this 
"  is  advantageous  to  the  private  works."  ^  In  many 
cases  no  doubt  municipalities  are  wise  enough  to 
refrain  from  such  unwise  parsimony ;  ^  but  it  can 
hardly  be  doubted  that,  on  the  average,  the  salaries 
of  high  municipal  officials  are  somewhat  lower  than 
the  salaries  given  in  private  trades ;  and,  unless  we 
assume  that  directors  are  more  ignorant  of  their 
business  than  councillors  and  are  paying  too  large 
salaries  in  consequence  of  that  ignorance,  it  follows 
that  the  net  profits  of  municipal  trades  are  actually 
less  than  they  would  be  if  higher  salaries  were 
given. 

(15)  One  of  the  effects  of  the  more  bureaucratic 
regime  of  Municipal  Councils  is  the  tendency  of  pro- 
motion amongst  the  staff  to  go  by  seniority,  and  the 
consequent  diminution  in  the  probability  of  the  best 
men  rising  to  the  highest  positions.  If  any  municipal 
employee  is  passed  over,  he  will  often  be  able  to 
get  some  councillor  to  demand  an  explanation  in 
the  Council ;  and,  if  the  reply  is  simply  that  tlie 
junior  was  promoted  because  the  managing 
committee  thought  him  the  better  man,  and  if,  as 
will   often   be   the   case,   no    facts    can   be   brought 

^  "  Municipal  Monopolies,"  A.  H.  Sinclair,  Toronto  University  Studies, 
p.  25. 

^  "  Municipal  Monopolies,"  E.  W.  Bemis,  article  on  Water-Works,  by 
M.  N.  Baker,  p.  41. 

''  M.T.R.,  Q.  1990. 


154     PUBLIC  AND  TRIVATE  MANAGEMENT   [chap.  vi. 

forward  in  support  of  this  assertion,  a  perfectly 
satisfactory  impression  is  seldom  thus  produced 
either  on  the  Coimcil  or  on  the  pubHc.  Proceed- 
ings leading  to  such  public  discussions  are,  therefore, 
avoided  by  managing  committees  and  responsible 
officials,  and  the  consequence  is  that,  as  a  rule, 
it  is  only  some  generally  recognised  defect  which 
prevents  any  official  from  rising  to  a  fairly  high 
position  in  any  service  controlled  by  a  popularly 
elected  body.  In  private  trades  the  absence  of 
occasions  for  public  discussions  certainly  facilitates 
promotion  by  selection,  and  consequently  makes  for 
efficient  and  economic  management.  On  the  other 
hand,  publicity  may  in  some  cases  put  a  stop  to 
jobbery,  and  it  certainly  tends  to  ensure  the  treat- 
ment of  the  staff  being  lenient. 

(16)  There  is,  moreover,  some  evidence  to  show 
that  the  tenure  of  office  of  officials  in  Municipal 
Trades  is  shorter  than  that  of  similar  officials  in 
private  trades.  It  has  been  stated  that  the  ablest 
employees  prefer  private  service  on  the  ground  that 
that  service  is  under  men  who  are  actuated  by 
business  motives  only ;  ^  and,  if  this  be  the  case, 
such  a  preference  will  no  doubt  make  them  more 
ready  to  leave  the  public  service  when  new  openings 
present  themselves.  It  can,  at  all  events,  hardly 
be  doubted  that  the  tenure  of  office  of  all  municipal 
employees  is  very  uncertain  in  the  United  States, 
where  the  spoils  system  prevails.  In  a  work 
written,  as  the  editor  tells  us,  "in  more  or  less 
"  pronounced  sympathy  with  an  extension  of  public 
"ownership,"  we  learn  that,  as  to  the  pubHc  water- 
works  of  the   United    States,   the   records   between 

*  "Traction  and  Transmission,"  March  1902,  p.  155. 


CHAP.  VI.]   POWER  OF  PERMANENT  OFFICIALS         155 

1882  and  1896  give  a  support,  thougli  not  so 
strong  a  support  as  the  author  had  anticipated, 
to  the  allegation  that  there  is  a  constant  change 
in  the  personnel?  This  certainly  indicates  a  real 
danger  to  municipal  enterprise,  even  if  the  evil 
results  have  not  been  actually  felt  in  England. 
But,  even  putting  aside  this  question  of  tenure 
of  office,  it  appears  probable  that,  although  some 
advantages  do,  it  is  true,  arise  from  the  selection 
of  the  staff  being  in  the  hands  of  a  public 
body,  yet  these  advantages  are  outweighed  by  the 
accompanying  disadvantages  resulting  from  lower 
salaries  and  less  elastic  systems  of  promotion ;  and, 
consequently,  municipal  trading  officials  are  likely, 
on  the  average,  to  be  somewhat  less  efficient,  and 
therefore  in  reality  more  costly,  than  the  officials 
occupying  similar  positions  in  private  trades. 

(17)  There  are,  however,  other  influences  at 
work  which  tend  to  make  the  salaried  staff  of 
Municipal  Trades,  whether  more  efficient  or  not, 
certainly  more  powerful  than  similar  officials  in 
private  trades.  "  The  combined  effect  of  the  ad- 
'*  venture  of  local  governing  bodies  into  so  many 
"  kinds  of  municipal  enterprise,  of  the  great  increase 
"  in  the  duties  and  responsibilities  devolving  on  the 
"  better  tyi^e  of  local  representatives,  and  the  ad- 
"  mission  to  those  bodies  of  so  many  individuals  not 
"  qualified  to  control  the  various  forms  of  trading 
"•which  are  undertaken,  is  to  throw  tlie  real  duties 
"  of  T.ocal  Government  more  and  more  upon  tlie 
"  permanent  officials,  and  to  create  a  municipal 
''  bureaucracy."  ^     Directors,  receiving   fees  for  their 

'  "  Muuicipal  Monopolies,"  Beinis,  p.  42.     See  also  "  L'Etat  Moderne," 
Leroy-Beaulieu,  pp.  65,  66.  ^  Times,  8th  September  1902. 


156     PUBLIC  AM)  PUn  ATE  MANAGEMENT  [chap.  vi. 

work,  tret  into  tlie  hal)it  of  making  their  attendance 
at  Boards,  etc.,  come  first  amongst  their  duties ; 
they  are,  as  we  have  seen,  more  permanent  in  their 
tenure  of  office ;  they  contain  within  their  ranks  a 
larger  proportion  of  business  men ;  and,  for  all 
these  reasons,  they  are  likely  to  exercise  a  some- 
what greater  control  over  their  staff  than  councillors 
are  generally  able  or  willing  to  do.i  It  is,  perhaps, 
doubtful  whether  directors  trust  their  officials 
sufficiently ;  and  if  a  nmnicipal  staff  be  thorouglily 
efficient,  the  greater  power  placed  in  their  hands 
may  not  tend  to  make  Municipal  Trade  less  profit- 
able. But  other  injurious  consequences  will  result 
from  any  slackness  in  the  control  exercised  by 
councillors  over  their  salaried  staff;  and  it  is,  at 
all  events,  certain  that  the  bureaucratic  tendencies 
which  may  thus  be  produced  will  not  be  counted 
amongst  the  merits  of  Municipal  Trade  by  its 
advocates. 

(18)  With  regard  to  two  important  matters, 
however,  a  municipal  staff  is  generally  less  powerful 
than  a  private  staff;  that  is  with  regard  to  bf;th  the 
discipline  and  the  pay  of  the  men  employed.  In 
disputes  on  both  these  subjects  employers  now  often 
conduct  negotiations  with  some  trades  union  or 
other  association  of  employees,  and  not  directly 
with  the  aggrieved  parties  tliemselves.  In  many 
questions  affecting  discipline,  and  especially  when 
organised  bodies  of  working  men  take  part  in  the 
dispute,  councillors  will  perceive  that  they  may 
Avin  many  votes  by  siding  with  the  men  ;  whereas, 
whether  any  official  involved  ought  to  be  supported 
or  not,  hardly  more  than  a  vote  or  two  will  be  lost 

'  M.T.R.,  Q.  1415. 


CHAP.  VI.]   DISCIPLINE  IN  MUNICIPAL  TRADES         157 

by  throwing  him  over.     ISIoreover,  the  mere  fact  that 
the  dismissal  of  any  man,  whether   on   account   of 
slack  times  or  on  a  question  of  work  or  discipline, 
is   liable   to   be   discussed   in   public   in  the  council 
may   make   the   staff  unwilling  to  proceed  to  such 
extremities,   even   in    cases    where    that    would    be 
the   right    course    to    pursue.^      When   appeals   are 
made    by   municipal    employees    to    the    managing 
committee,  there  is  often  some  doubt  as  to  whether 
that   body   will  be  influenced  by  political  or  other 
irrelevant  considerations ;  and,  whenever  this  is  the 
case,   the    maintenance    of    discipline   and    the   ex- 
action   of    an   adequate    day's   work    become    more 
diflicult.     If  the  committee  look  partly  to  the  vote, 
the   foreman   will    not    look    wholly   to    the   work. 
Even   the   visits   of   councillors   to   the   works,   and 
the     knowledge     the    vote-owning    workman     thus 
acquires  that  his  complaints  will  be  listened  to  not 
wholly   without   reference   to   that   vote,   is   said  to 
affect  the  authority  of  the  oflicials  in  charge.'-    Where 
there  is  "  constant  interference   by  the  members  of 
"  the  committee  with  the  idea,  apparently,  either  of 
"  securing  employment  on  the  job  for  their  friends," 
or   of  winning   popularity   in  any  way,    the   results 
must    be    disastrous,    and    such    extreme    instances, 
even   if  at  present  very  rare  in    England,   serve  to 
show    what    Municipal     Trade     might     become     if 
ever  municipal  corruption  became  more  prevalent.^ 
None  of  these  influences  are  felt  in  private   trade, 
where    the    workman,    who    is   practically   never   a 
shareholder  in  the  company  employing  him,  is  un- 

'  Time.'^,  16th  September  1902  ;  also  M.T.R.,  Q.  3290. 

2  Ibid.,  10th  Sci.tcinber  1902. 

3  Ibid.,  18th  September  1902. 


158     IM^BLIC  AM)  PUIVATE  MANAGEMENT   [chap.  vi. 

able  to  bring  any  indirect  influence  to  bear  on  the 
directors  in  liis  disputes  with  tlieir  staff;  and  we 
may  conchide,  therefore,  that  discipline  will  gener- 
ally be  somewhat  more  strict  and  work  somewhat 
more  economically  conducted  in  private  trade  than 
in  Municipal  Trade. 

(19)  As  to  the  wage  of  the  municipal  workman, 
there  are  many  influences  acting  on  councillors 
which  tend  to  make  them  too  ready  to  listen  to 
any  demands  made  by  or  on  behalf  of  any  of  their 
employees,  except  those  receiving  high  salaries. 
There  is  the  corrupt  desire  to  catch  votes,  a  desire 
which  expresses  itself  in  such  an  election  cry  as, 
"  Vote  for  me,  and  I  will  vote  for  an  8  hours'  day 
"and  30s.  a  week."^  An  increase  of  pay  may,  of 
course,  often  be  justifiable  ;  but,  when  such  objection- 
able platform  promises  as  these  are  freely  made,  it 
is  certain  that  the  question  whether  a  compliance 
with  them  would  or  would  not  raise  the  level  of  the 
pay  of  the  municipal  workman  above  that  of  his 
fellows  in  private  trade  will  receive  but  scant 
attention.  It  is,  in  fact,  obvious  that  municipal 
corruption  will  be  attended  by  an  increase  in  the 
municipal  labour  bill.  IJut  will  not  tlie  private 
labour  bill  be  lower  even  in  the  absence  of  any 
corrupt  motives  ?  AVhere  we  find,  as  at  South- 
ampton, socialistic  councillors  reported  to  be  "  pilot- 
"  ing  through,  practically  with  no  opposition,  a  rise 
'•  in  wages  for  nearly  all  the  Corporation  workmen," 
we  cannot  assume  that  such  proceedings  are  under- 
taken under  any  other  inliuence  tlian  the  mistaken 
belief  tiiat  wages  can  be  increased  under  a  system 
of  Municipal  Trade  without  any  one  being  hijuriously 

1  Times,  16th  September  1902, 


CHAP.  VI.]  WAGES  OF  EMPLOYEES  159 

affected.^    The  ideas  prevalent  amongst  working  men 

are  far  more  likely  to  be  found  influencing  councillors 

than  directors,   and  such  ideas  naturally  favour  the 

employee   rather  than  the  employer.     For  example, 

one  of  the  reasons  which  have  led  trades  unions  to 

favour  the   same   rate   of  wages   for  good,  bad,  or 

indifferent    workmen,    is    probably    tliat    the    more 

simple   the   demand   and   the    less   subject   it   is   to 

possible   exceptions,   the   more   easy   it   becomes   to 

fight   a   trade    contest.       But    good    workmen    will 

refuse   to   work   unless    they   get   good   pay ;    some 

good  workmen  must,  as  a  rule,  always  be  employed ; 

and  the  adherence  to  this  principle  wdll  consequently 

tend  to  raise  the  wage  of  the  lazy  workman  rather 

than  to  pull  down  the  wage  of  the  efficient  labourer ; 

and  the  more  completely  it  is  adopted   the  higher 

will   be   the    lal^our    bill.     It   follows    that,    if    the 

demand  for  a  uniform  rate  of  wages  is  less  resisted 

by  councillors   than   by  directors,  Municipal  Trade 

must   be   more   costly   than   private    trade.     Again, 

there  is  at  present  a  fallacy  very  prevalent  amongst 

English  working   men   tliat  a  general  hmitation  of 

output  would  enable  employers  to  raise  wages ;  and 

to    whatever    extent    this    belief    influences    Local 

Authorities,  to  a  con-esponding  extent  must  it  make 

them  indifferent  to  the  output  per  man  in  municipal 

works,  or,  in  other  words,  to  the  cost  of  municipal 

services.     Then,   again,   prices   must    rise   and    fall ; 

and,    when   they   are    falling,    stern    necessity   often 

forces  pri\'ate  proprietors  to  lower  wages ;  whereas, 

in  Municipal  Trade,  where  local  taxation  is  available 

to  cover  deficiencies,  councillors  have  no  such  rigid 

impediment   preventing   them    from   giving  way   to 

»  Tivies,  10th  September  1902. 


160     PITBLIC  AND  PRIVATE  MANAGEMENT  [chap.  vi. 

tlie  various  influences,  including  their  own  benevolent 
feelings,  which  make  them  wish  to  postpone  all 
reductions  in  wages.  Lastly,  in  the  disputes 
between  employers  and  employees,  we  now  not 
infrequently  find  associations  of  masters  treating 
with  associations  of  men ;  whereas,  in  ^Municipal 
Trade,  Town  Councils  are  found  standing  alone, 
and  are  consequently  in  a  weaker  position  than 
private  employers.^  Thus  there  are  many  influ- 
ences besides  those  connected  with  corrupt  intention 
which  tend  to  make  the  municipal  labour  bill 
higher  than  the  private  labour  bill. 

(20)  An  impartial  enquiry  is,  no  doubt,  much 
needed  to  determine  to  what  extent  these  influences 
affect  the  relative  level  of  wages  in  public  and  private 
employment ;  but  that  they  have  a  considerable 
effect  I  have  no  doubt  whatever.  When  private 
industries  are  municipalised,  councillors  frequently 
boast  of  the  subsequent  increase  in  the  wages  of  the 
workmen  employed  on  them ;  as,  for  example,  when 
Lord  l*rovost  Chisholm  stated  that  the  Glasgow 
"  Corporation  have  reduced  the  hours  of  employees 
"at  least  25  per  cent,  while  they  have  also  increased 
"the  wages  practically  to  the  same  extent"  on  the 
tramways  ;  -  or  when  Alderman  Sir  Thomas  Hughes, 
speaking  of  the  employees  on  the  Liverpool  tram- 
ways, states  that  "their  average  earnings  now  are 
"  about  .5s.  a  week  more  than  they  were  under  the 
"  Company."  ^  It  is  less  easy  to  prove  that  wages  are 
higlier  in  old-established  municipal  trades,  and  on 
that  point  information  would  be  very  valuable.  Ikit 
it    can   hardly    be   doubted   that   the    conditions   of 

1  M.T.R.,  Q.  3583. 

■  Letter  to  the  Tim<^,  24th  October  1902, 

3  M.T.R.,  Q.  2125. 


CHAP.  VI.]  WAGES  OF  EMPLOYEES  161 

municipal  employment  are  less  rigidly  determined 
by  the  laws  of  supply  and  demand  than  is  the  case 
in  private  trade,  with  the  result  that  there  is  a 
greater  diversity  of  wages.  The  pay  of  the  municipal 
workman  can  seldom  be  much  lower  than  that  of 
his  equal  in  private  industry,  and,  if  it  is  less  uniform, 
it  must  sometimes  be  considerably  higher.  Mr 
Charles  Booth's  work  appears  to  confirm  the  belief 
in  the  want  of  uniformity  in  the  terms  offered  by 
different  municipalities ;  and  he  remarks,  as  to 
municipal  sweepers,  that  they  are  in  some  cases 
"  paid  a  wage  which  is  no  doubt  economically 
"  excessive."  ^  It  is,  in  fact,  certain  that  the  muni- 
cipal labour  bill  will  be  considerably  higher  than 
the  private  labour  bill  for  a  given  piece  of  work.^ 

(21)  In  considering  the  effect  of  these  various 
influences,  we  have  thus  far  been  dealing  with 
questions  connected  with  the  selection  of  enterprises, 
and  with  the  employment  of  officials  and  workmen. 
Amongst  the  important  duties  of  councillors  and 
directors  there  remain  their  decisions  on  questions 
of  general  policy ;  and,  in  regard  to  these  decisions, 
and  indeed  in  regard  to  the  whole  subject,  the  main 
point  to  be  remembered  is  that  directors,  unlike 
councillors,  are  elected  by  constituents  who  look 
wholly  to  profits,  and  who  will  consequently  use 
tlieir  influence  wholly  in  the  direction  of  economy. 
On  the  other  hand,  as  regards  Municipal  Trade,  it 
would  only  be  the  rates  paid  by  the  very  rich  which 
would  be  at  once  materially  affected  by  any  change 
in  the  management  of  the  municipal  gas-works,  for 
example ;    and,    even    in    such    a   case,   it   would    be 

'  "Life  and  Labour  of  the.  People,"  Booth,  vol.  viii.  p.  30. 
«  See  chap.  iv.  par.  11,  as  to  wages  iu  the  United  States. 


162     PiniLIC  AND  PRIVATE  MANAGEMENT    [chap.  vi. 

difficult  for  the  ratepayer  to  trace  the  rehef  or 
increment  of  the  burden  of  local  taxation  to  its 
true  cause.  Whether  this  be  the  main  explanation 
or  not,  few  who  have  closely  watched  the  work- 
ing of  Local  Government  institutions  in  England 
can  fail  to  be  struck  with  the  scant  regard  that  is 
paid  to  any  one  who  advocates  economy  or  retrench- 
ment; and  as  regards  financial  results,  the  effect 
will  surely  be  that  Municipal  Trade  will  be  more 
costly  than  private  trade. 

(22)  This  difference  in  cost  between  private  and 
Municipal  Trade,  which  is  due  to  the  above-mentioned 
influences,  will  be  less  as  the  tendency  of  the  trade 
in    question    to    become    a    monopoly    is    greater; 
because   private    trade   responds   more   readily   than 
JNlunicipal   Trade   to    the    stimulating   influences   of 
competition.     Boards   of  Directors   when   managing 
monopohes   are  apt   to   be    afflicted  with   the   same 
"sleepiness"  that   is  noticeable  in  Government   de- 
partments ;  for,  if  they  are  sheltered  from  competi- 
tion, energetic  or  apathetic  action  on  their  part  can 
liave   but   little   effect  in  the  way  of  increasing  or 
diminishing    sales,    because    trade    cannot    thus    be 
attracted    from,    or    diverted    to,    other    producers. 
But  although  the  claim  that  private  trade  is  more 
economical     than    Municipal    Trade    is    weaker    in 
trades  where  the  stimulus  of  competition  is  absent, 
it  cannot  be  ignored  even  in  tlie  case  of  complete 
monopohes  ;  for  dividends  can  always  be  increased 
by    economical    administration.      It    is    only    when 
directors   arc   prohibited    by    legal    enactments   from 
paying   any   increased   dividend   that   they  cease  to 
have   any    incentives   to    economy ;    and.    as    it   will 
be   seen   in   a   subsequent    chapter    that   such   rigid 


CHAP.  VI.]  INSPECTION  OF  GOODS  163 

statutory  limitations  on  dividends  need  not  and 
should  not  be  imposed  on  private  companies,  this 
fact  need  not  be  considered  in  discussing  the 
inherent  differences  between  municipal  and  private 
trade.  Thus,  granted  suitable  legislation,  directors 
will  always  be  more  subject  than  councillors  to 
influences  tending  to  make  them  economical,  though 
the  difference  will  be  less  in  monopolies  than  in 
competitive  trades. 

(23)  Another  influence  aflecting  the  relative 
efficiency  of  municipal  and  private  trades  arises 
from  the  fact  that,  as  regards  municipalised 
industries,  Councillors  represent  both  the  buyer 
and  the  seller,  and  that,  as  representing  the  buyers, 
they  often  have  to  control  the  inspection  of  the 
goods  which  they  themselves  supply  as  sellers. 
In  this  manner  Local  Authorities  sometimes  have 
imposed  on  them  semi-judicial  "  functions,  the 
"administration  of  which  may  put  them  in  conflict 
"  with  their  own  interests  " ;  ^  as,  for  example,  when 
attention  is  paid  by  a  Council  to  the  unfavourable 
reports  of  their  own  gas  inspectors  on  their  own 
works,  it  may  lead  to  steps  being  taken  which 
diminish  profits,  and  which  result  in  a  reduction  of 
the  revenue  falling  into  the  municipal  treasury. 
AVith  regard  to  industries  which  tend  to  become 
monopolies,  like  the  supply  of  water,  gas,  or 
electricity,  the  I^ocal  ^Vuthorities  concerned  nearly 
always  have  the  right  to  inspect  such  goods  and 
the  power  to  insist  on  their  being  kept  up  to  a 
certain  standard,  even  when  supplied  by  private 
companies ;  and,  in  thus  inspecting  the  works  of 
private  proprietors,  they  will  in  no  way  be  acting 

'  M.T.R.,  Mr  D.  H.  Davies,  Q.  2609. 


\CA     PUBLIC  AND  PRIVATE  MANAGEMENT   [chap.  vi. 

contrary   to    their   own   interests   and   will    not    be 
subject    to    any   temptation    to    laxity.     Popularity 
may,  in  fact,   be   won    by  councillors,  by  "  making 
"a  fuss"   about   the   quality    of  goods  supplied  by 
private   proprietors,   and   municipal    inspection   will, 
in   such   cases,   be   keenly  supervised ;    whereas,   on 
the  other  hand,  a  Council  will,  on  the  whole,  lose 
rather  than  gain    in    popularity  by  attention   being 
called   to   the  reports   of  its  inspecting  department 
when    they   are    unfavourable    to    its    own    manu- 
facturing    department,     and     these     reports     will, 
therefore,   be    less    keenly   attended    to.       Granted 
the   proper    powers,   there    is    no    reason    why   the 
municipal    inspection    of   goods    made    by   munici 
palities    should    ever    be    more    rigidly    conducted 
than   the   municipal   inspection   of  privately   manu- 
factured  goods ;    and   there   are,   as    we    see,   some 
reasons  why  it  may  be  expected   to  be  sometimes 
more    lax.      And    the    comparative    laxity    of    in- 
spection  must   sometimes  result   in   the  production 
of    comparatively    inferior     goods.        JVIunicipalities 
have    not    now,    I    believe,    sufficient    power    over 
private   monopolies ;    but  if    suitable   reforms   were 
made,    the    fact   that    Local    Authorities    are   solely 
concerned   with   the   interests   of   their   constituents 
as  consumers  when  inspecting  goods  made  by  private 
companies   would   tell   even    more    strongly  than   it 
does    now   in    fjivour   of    monopolies    remaining    in 
private    hands.       Moreover,    if    municipalities    ever 
undertake    the    management   of    many    competitive 
industries,    even   more    serious    consequences   might 
result   from   their   playing    the   parts    of    both    the 
inspector    and     the    inspected.       Local    Authorities 
have,   for  example,  frequently  demanded   tiie   right 


CHAP.  VI.]  INSPECTION  OF  GOODS  165 

to  manufacture  electrical  fittings  ;  and,  if  thi.s  demand 
were  granted,  it  would  not  improbably  be  followed 
by  a  further  demand  to  be  allowed  to  inspect  all 
electrical  fittings  in  houses  supplied  with  electricity 
from  their  municipal  works  ;  and  this  latter  demand, 
if  granted,  would  practically  place  in  the  hands  of 
the  municipahty  the  power  to  crush  out  its  rivals 
in  this  industry  in  the  area  under  its  control.^  Tiie 
existing  powers  of  inspection  of  food,  drugs,  etc., 
though  they  are  now  beneficial  in  their  results, 
might  well  be  used  by  municipalities  as  a  method 
of  protecting  their  own  manufactories ;  and  in  spite 
of  all  inspections  such  a  limitation  of  competition 
would  inevitably  result  in  a  deterioration  in  the 
quahty  of  the  goods  obtainable  by  the  public- 
The  case  of  the  refusal  of  the  Blackpool  Corporation 
"to  grant  licenses  to  omnibuses  which  had  hitherto 
"  plied  in  the  streets  in  competition  with "  their 
own  trams  has  already  been  mentioned ;  ^  and  such 
proceedings,  whether  justifiable  or  not,  evidently 
have  the  effect  of  freeing  Local  Authorities  from  a 
stimulating  competitioji  in  the  conduct  of  their 
own  enterprises.  It  has,  no  doubt,  been  suggested 
that  the  municipal  police  can  be  made  to  check 
any  waste  of  water,  or  perhaps  of  gas,  or  electricity, 
more  effectively  when  these  commodities  are 
supplied  by  the  municipahty.  This  may,  perhaps, 
be  some  set-off  against  the  above-mentioned  dis- 
advantages ;  thougli  it  suggests  unpleasant  visions 
of  domiciliary  visits  by  officials.  Local  ^Vuthoiities 
may,  in  fact,  gain  something  by  making  their 
police   act   as  inspectors  on  behalf  of  themselves   as 

1  .M.T.R.,  Q.  222.  ^  Ibid.,  Q.  838. 

3  "Traction  and  Transmission,"  October  1901,  p.  94. 


166     PUBLIC  AND  PRIVATE  MANAGEMENT   [chap.  vi. 

manufacturers;  but,  whether  this  be  so  or  not, 
it  can  hardly  be  denied  that  their  inspection  of 
commodities  on  behalf  of  the  consumers  will,  on  the 
average,  be  more  efficiently  conducted  if  they  are 
not  directly  responsible  for  both  the  inspections 
and  for  the  manufactory  inspected. 

(24)  If  inspections  are  to  be  effective,  it  is 
essential  that  the  interested  parties  should  have 
ready  means  of  calling  the  attention  of  the  in- 
spectors to  their  grievances ;  and  the  question  arises 
whether  discontent  is  more  easily  made  known,  and 
the  evils  complained  of  more  certainly  remedied, 
when  trades  are  under  municipal  or  when  they  are 
under  private  management.  As  to  the  mere  ex- 
pression of  discontent  on  the  j9ari  of  the  consumer, 
there  is  no  reason  why  the  citizen  should  not 
grumble  as  loudly  against  the  misdeeds  of  private 
companies  as  against  those  of  Corporations ;  and,  in 
the  case  of  monopolies  inspected  by  municipal 
officials,  the  reports  of  the  inspectors  to  their 
Town  Councils  would,  under  both  systems,  afford 
an  opportunity  for  criticism,  a  criticism  which 
would  probably  be  more  searching  when  the  works 
were  in  private  hands.  But  as  regards  the  dis- 
content which  the  voter  may  or  ought  to  feel  if 
he  regards  himself  as  a  j^^^'^^'^^'^p^^^'t^  '^^  ^^^^  o^isks, 
profits,  or  losses  of  municipal  industries,  it  is  easy 
to  see  that  he  stands  in  a  very  different  position 
from  that  of  the  shareholder  in  a  private  company. 
The  financial  effects  of  Municipal  Trade  are  not 
brought  home  to  the  voter  with  anything  like  the 
clearness  or  accuracy  with  which  the  financial  effects 
of  private  trade  are  usually  brought  home  to  the 
shareholder    by   the   regular   or   irregular    payments 


CHAP.  VI.]  SALE  OF  SHARES  167 

of  dividends.  Moreover,  shareholders  unintention- 
ally acquaint  their  directors  with  their  feelings  of 
discontent  in  a  way  which  is  not  open  to  voters 
in  relation  to  the  councillors  elected  by  them.  The 
shareholder  can  sell  his  shares ;  and,  when  discontent 
shows  itself  at  all  widely  in  this  way,  there  is  a 
drop  in  the  value  of  such  shares,  which  calls  the 
directors'  attention  instantly  to  the  fact.  Voters,  on 
the  other  hand,  can  only  "  sell  their  shares  "  in  muni- 
cipal enterprises  by  both  selling  all  their  property 
in  the  district  and  leaving  the  neighbourhood 
themselves ;  and  this  they  would  never  do  merely 
on  the  ground,  for  example,  that  they  believed 
that  the  management  of  the  municipal  gas-works 
showed  some  signs  of  deterioration.  And  even  if 
things  did  come  to  such  a  pass  as  to  induce  some 
voters  to  take  refuge  in  flight,  all  property  similar 
to  that  sold  or  quitted,  and  not  only  the  gas- 
ivorks,  would  then  show  signs  of  a  fall  in  value, 
and  such  a  fall  in  value  would  be  proportionately 
less  noticeable.  The  conduct  of  the  gas  committee 
would,  in  fact,  practically  never  be  influenced  by 
voters  expressing  their  discontent  by  leaving  the 
neighbourhood ;  whereas  directors  are  greatly  in- 
fluenced by  the  sales  effected  by  shareholders — by 
those  very  shareholders  whose  apathy  at  meetings 
often  appears  so  surprising.  The  marked  influence 
of  this  silent,  easy,  but  undesigned  method  of  ex- 
pressing discontent  which  is  possessed  by  share- 
holders and  not  by  voters,  is  often  forgotten  in  this 
controversy ;  and  this  it  should  not  be,  for  it  has 
a  powerful  influence  tending  to  stimulate  energetic 
and  economical  management  in  private  trade. 

(25)  But    mere    expressions    of    discontent    are 


168     PUBLIC  AND  PRIVATE  MANAGEMENT   [chai .  vi. 

useless  unless  they  are  followed  by  remedies.     We 
have  just  seen  that  the  voter,  in  his  capacity  as  a 
"  municipal    shareholder,"   will   be    less    likely   than 
tlie  company  shareholder  to  express  his  discontent ; 
and,  as  companies  are  quite  as  Ukely  as  Corporations 
to  introduce  economic  reforms,  it  follows  that  dis- 
content as  to  private  trade  is  more  likely  to  produce 
financial    effects   than   discontent   as    to    JMunicipal 
Trade.     As  to  the  discontent  of  the  citizen  regarded 
as   a   customer,  taking  first  the  case  of  competitive 
trade,   consumers   will    always    have    at    hand    the 
most  effective  method  of  remedying  their  grievances 
whether  the  trade  be  municipal  or  private ;  for  they 
can   always   go   elsewhere   for   their   supplies.      But 
with    monopolies    this    is    not    the    case,    and    the 
strongest  argument   in   favour   of  JMunicipal    Trade 
is   founded    on    the    assertion    that    elected    bodies 
can   and   will   attend  to  the  complaints   of  citizens 
most    effectively    when    they    themselves    are    the 
managers  of  the  industry  complained  of.     The  evi- 
dence on  this  point,  however,  does  not  all  tell  one 
way;  and  most  persons  who  have  travelled  abroad 
and  who  have  watched   the   action  of  bureaucratic 
representative     Govermnents    will    entertain     some 
doubts  as  to  the  universal   truth   of  the  statement 
that  State  officials  listen  more  readily  than  private 
employees    to     the    complaints    of    citizens.       Our 
Post-Office   is   admirably   managed    on   the   whole ; 
but     the    rapidity    with    which    it    adopts    reforms 
suggested  by  "  outsiders  "  is  not  one  of  its  strongest 
points.     In   the    United   States,  in  the  case  of  the 
transference    of    the    Philadelphia    gas-works    to    a 
private     company    after     being    managed    for    ten 
years   by  the   municipality,  we  find   it   stated   that 


CHAP.  VI.]      REMUNERATION  OF  DIRECTORS  169 

the  " indifference,  delay,  and  discourtesy"  in  the 
city  gas  offices  was  perhaps  the  real  reason  that 
many  citizens  were  in  favour  of  the  change.^  But 
no  doubt  the  possibility,  and  in  many  instances  the 
probability,  of  a  monopoly  being  managed  by 
Local  Authorities  solely  in  the  interests  of  the 
public  is  the  main  argument  for  municipal  enter- 
prise ;  and,  as  regards  each  separate  monopoly, 
the  decision  as  to  whether  it  should  be  allowed  to 
remain  in  private  hands  should  depend  on  whether 
the  private  proprietors  can  or  cannot  be  controlled 
by  the  municipahty  so  as  to  safeguard  the  con- 
sumers' interests  to  such  an  extent  as  to  make  the 
balance  of  argument,  when  all  the  other  points  are 
taken  into  consideration,  turn  against  Municipal 
Trade.  The  belief  that  elected  bodies  will  pay 
more  effective  attention  to  the  giievances  of  the 
consumers  of  municipal  manufactures,  when  it  can 
reasonably  be  entertained,  is,  no  doubt,  an  im- 
portant weight  on  the  side  of  INIunicipal  Trade. 
But  it  can  hardly  be  claimed  that  such  ready 
attention  makes  for  economy. 

(26)  As  an  argument  in  favour  of  JMunicipal 
Trade,  it  must  not  be  forgotten  in  this  discussion 
that  councillors  get  no  remuneration  for  managing 
the  industries  under  their  charge,  whilst  directors 
draw  more  or  less  considerable  fees.  In  small  com- 
panies these  fees,  no  doubt,  amount  to  a  material 
item  in  the  expenditure  ;  but  in  large  concerns  their 
entire  renunciation  would  often  not  increase  the 
dividend  paid  to  the  shareholders  by  more  than 
jijth  per  cent,  on  the  shares  at  their  market  value. 
Opinions  probably  differ  widely  as  to   the   ultimate 

^  Quart.  Journal  of  Economics,  W.  D.  Lewis,  January  1898,  p.  219. 


170     PUBLIC  AND  PRIVATE  MANAGEMENT   [chap.  vi. 

effect  of  gratuitous  management ;  but  the  majority 
of  business  men  will,  I  believe,  agree  in  thinking 
that  it  does  not,  on  the  whole,  make  for  economy  or 
efficiency  in  trading  enterprises. 

(27)  Thus  we  see  that  not  only  are  the  enterprises 
undertaken  by  municipalities,  on  account  of  their 
scope  and  nature,  likely  to  be  less  remunerative  than 
those  undertaken  by  private  proprietors,  but  they 
are  also,  for  various  reasons,  less  likely  to  be 
economically  managed ;  the  greater  keenness  of 
shareholders  as  compared  with  voters  as  advocates 
of  economy ;  the  less  searching  inspection  of 
monopolies  managed  by  Local  Authorities ;  the 
lower  salaries,  less  permanent  employment  and  more 
bureaucratic  methods  of  promotion  of  municipal 
officials ;  the  less  rigid  enforcement  of  disciphne ; 
and,  above  all,  the  higher  pay  of  workmen  on 
public  works  ;  these  are  all  factors  tending  to  pro- 
duce this  result.  The  underlying  reason  why  there 
are  so  many  considerations,  some  important  some 
comparatively  unimportant,  all  pointing  in  one  direc- 
tion, undoubtedly  is  that  a  body  especially  designed 
for  one  purpose^  namely,  administration,  however 
admirably  it  may  perform  the  functions  for  which  it 
■was  designed,  is  not  necessarily  suited  to  perform  very 
different  functions,  namely,  those  of  trade  managers. 
The  more  closely  the  duties  which  have  to  be  per- 
formed resemble  those  of  the  private  trader,  the  more 
likely  are  Corporations  to  perform  them  uneconomic- 
ally  and  inefficiently ;  whereas  the  more  necessary  it 
is  that  attention  should  be  directed  to  such  questions 
as  health,  morals,  and  public  convenience,  as  to  which 
it  is  important  that  mistakes  should  be  promptly 
rectified  even   at  the  expense  of  an  increase  in   the 


CHAP.  VI.]  CONCLUSIONS  171 

cost  of  production,  the  more  likely  are  Corporations 
to  meet  the  requirements  of  the  community.  It  is 
useless  to  point  to  brilliant  instances  of  good  manage- 
ment, such  as  those  probably  afforded  by  Manchester 
or  Glasgow,  as  proofs  that  the  foregoing  conclusions 
are  erroneous  ;  it  is  useless,  because  no  one  doubts 
that  numbers  of  trading  enterprises  are  also  ex- 
cellently managed  by  private  proprietors ;  and  such 
instances  of  good  management  in  municipal  and 
private  trade  prove  nothing  as  to  the  average 
relative  level  of  management  in  the  two  cases. 
We  may  "pay  a  high  tribute  to  the  excellent 
"management  of  their  affairs  by  municipalities,"^ 
and  yet  declare  that,  in  matters  of  trade,  manage- 
ment by  private  companies  is,  on  the  average,  even 
better.  No  one  accuses  our  Local  Authorities  of 
gross  neglect.  All  that  is  here  asserted  is  that, 
as  the  result  of  various  unavoidable  influences,  the 
management  of  municipal  trades  will,  on  the 
average,  be  less  economical  and  somewhat  less  effi- 
cient than  the  management  of  private  trades. 

(28)  But  even  if  it  be  admitted  that  the  fore- 
going conclusions  are  the  logical  result  of  private 
trade  being  governed  by  that  keenest  of  all  in- 
centives to  economic  administration,  the  hope  of 
personal  gain,  it  may  yet  be  urged  that,  as  long 
as  trade  remains  in  private  hands,  the  public 
generally  will  have  no  interest  in  the  advantages 
arising  from  its  economic  administration.  As 
regards  competitive  trades,  it  is,  however,  quite 
obvious  that  economies  sooner  or  later  normally 
lead  to  proportionate  reductions  in  prices,  and 
that  in  the  long  run  the  public  do  thus  benefit 
1  M.T.R.,  Q.  191,  Sir  Courtenay  Boyle. 


172     PUBLIC  AND  PRIVATE  MANAGEIVIENT   [chap.  m. 

by  the  economic  management  of  private  com- 
petitive trades ;  and,  if  municipal  management  is 
in  truth  less  economic  than  private  management, 
and   if  the   services   rendered   are   beneficial  to   the  i 

community,  the   argument   in   favour  of  Municipal  ' 

Trade  in  competitive  industries  fails  all  along  the 
line.  As  to  monopolies,  the  case  is  different. 
Before  deciding  whether  any  such  industry  should 
or  should  not  be  allowed  to  remain  in  private 
hands,   both   sides   of    the   question    must   be    con-  I 

sidered.     As  to  citizens  regarded  as  consumers,  we  ! 

must  estimate,  on  the  one  hand,  to  what  extent 
they  can  be  safeguarded  when  the  monopoly  in 
question  is  managed  by  private  proprietors ;  and 
to  what  extent,  on  the  other  hand,  they  will  be 
injuriously  affected  by  the  less  efficient  manage- 
ment by  Local  iVuthorities  in  the  case  of  IVIuni- 
cipal  Trade.  As  to  the  citizens  regarded  as  rate- 
payers, we  must  estimate,  on  the  one  hand,  to 
what  extent  they  can  be  made  to  share  in  the 
benefits  arising  from  the  economic  and  efficient 
management  of  monopolies  by  private  companies, 
and  to  what  extent,  consequently,  will  the  share- 
holders in  those  companies,  in  studying  their  own 
interests,  also  be  studying  the  interests  of  the 
community  at  large ;  and,  on  the  other  hand, 
taking  the  less  economic  management  by  Local 
Authorities  into  account,  to  what  extent  the  burden 
of    local    taxation   will    be    affected    by   the    muni-  M 

cipalisation  of  the  monopoly  in  question.  It  is  to 
this  latter  pair  of  questions — that  is,  to  the  financial 
effects  of  Municipal  Trade — that  we  shall  now 
turn  our  attention. 


VII 

RISKS   AND   GAINS 

(1)  The  argument  which  is  perhaps  most  fre- 
quently brought  forward  in  favour  of  the  policy 
of  municipal  trading  is  that  it  is  possible  to 
create  a  valuable  source  of  public  revenue  by  the 
municipalisation  of  various  industries.  It  would 
at  first  sight  appear  to  be  a  comparatively  simple 
matter  to  confirm  or  to  refute  this  contention  by 
reference  to  the  statistics  of  JNIunicipal  Trade. 
Before  considering  all  the  difficulties  which  are 
in  fact  met  with  in  making  any  attempt  to  deal 
with  the  matter  in  this  way,  it  will  be  as  well 
to  discuss  the  questions  involved  without  reference 
to  figures;  and  in  this  way  we  shall  both  clear 
the  ground,  and  endeavour  to  ascertain  what 
financial  success  is  likely  to  attend  municipal 
enterprises. 

(2)  It  is  important  in  this  discussion,  as  in  all 
others,  to  begin  by  getting  a  clear  idea  of  the 
questions  which  have  to  be  answered.  How  well 
have  municipalities  succeeded  in  their  industrial 
enterprises  from  a  financial  point  of  view  ?  To 
what  extent  are  past  results  rehable  as  guides 
for  the  future?  And,  if  taxation  will  be  either 
reduced  or  increased  by  the  municipalisation  of 
any     industry,    to     what     extent     does     that     fact 

173 


174  RISKS  AND  GAINS  [chap.  vii. 

justify  or  condemn  the  adoption  of  that  policy? 
These  questions,  which  cannot  be  considered  quite 
separately,  must  all  be  held  in  view  during  the 
following  discussion ;  for  it  cannot  be  assumed 
that  the  municipalisation  of  any  industry  will  be 
as  successful  or  unsuccessful  in  the  future  as  it 
has  been  in  the  past ;  and  the  proof  that  a  profit 
or  a  loss  has  been  made  is  only  one  amongst  the 
many  advantages  or  disadvantages  which  have  to 
be  weighed  in  the  balance  before  any  decision  can 
be  arrived  at. 

(3)  As  to  the  first  of  the  foregoing  questions, 
before  asking  whether  a  municipal  trade  has  been 
financially  successful  or  not,  we  ought  in  the  same 
way  to  be  quite  clear  as  to  the  exact  meaning 
which  we  intend  to  convey  by  that  question  ;  and, 
with  a  view  to  this  discussion,  it  will  be  useful  to 
state  clearly  what  is  here  meant  by  the  word 
profit.  Taking  the  case  of  a  municipality  owning 
gas-works  as  an  example,  the  Local  Authorities 
concerned  receive  a  certain  income  from  the  sale 
of  their  gas,  and  out  of  this  income  they  have  to 
pay  certain  expenses  of  management,  including 
salaries,  wages,  and  cost  of  materials ;  and  if  there 
is  any  surplus  over  after  these  payments  have 
been  made,  that  surplus  is  here  called  the  gross 
profit.  The  gross  profit  is  therefore  equivalent  to 
the  annual  dividend  normally  paid  to  the  share- 
holders of  a  private  company,  provided  that  the 
company  has  no  interest  on  debts  or  debentures  to 
2^rovide  for.  Accepting  this  definition,  it  becomes 
clear  that  the  proof  of  a  gross  profit  being  made 
is  not  sufficient  to  prove  that  municipal  gas-works 
are  a  financial  success ;  for  out  of  these  gross  profits, 


CHAP.  VII.]  PROFIT  AND  GAIN  175 

the  Local  Authorities  concerned  have  usually  to 
provide  for  the  interest  on  the  municipal  debts 
incurred  for  the  building  or  the  purchase  of  the  gas- 
works, and  for  sinking  fund  charges  for  the  redemp- 
tion of  those  debts.  If,  however,  there  is  a  surplus 
after  providing  for  repayments  of  principal  and  for 
interest  as  well  as  for  the  expenses  of  management, 
a  surplus  which  will  here  be  called  the  net  j^'t^ofit, 
it  is  clear  that  this  net  profit  will  fall  undiminished 
into  the  municipal  treasury,  and  that  the  whole  of 
it  may  be  included  in  the  public  revenue.  The 
word  loss  will  be  used  in  the  opposite  sense  to 
the  word  ijrqfit. 

(4)  Here,  again,  it  is  necessary  to  insist  on  the 
fact  that  we  are  dealing  with  a  compmison  between 
two  policies,  and  that  both  sides  of  the  question 
must  always  be  studied.  We  must  consider,  not 
only  what  are  the  receipts  falling  into  the  municipal 
treasury  when  an  industry  is  municipalised,  but 
also  what  those  receipts  would  have  been  had  the 
industry  remained  in  private  hands.  This  point  is 
best  illustrated  by  a  reference  to  local  taxation, 
though  this  is  certainly  the  least  important  point 
involved.  When  gas-works  are  municipalised,  the 
payment  of  rates  on  that  property  amounts  merely 
to  a  transfer  of  money  from  one  municipal  pocket 
to  another ;  and,  even  though  a  municipality 
had  in  fact  gained  nothing  whatever  by  assuming 
the  management  of  the  gas  supply,  it  might, 
nevertheless,  be  able  to  show  a  considerable  net 
jprojit  by  omitting  to  charge  rates  against  its 
own  works.  No  one  would  defend  a  system  of 
municipal  account-keeping  which  permitted  such  a 
false  impression  to  be  created ;   but  this  illustration 


176  RISKS  AND  GAINS  [chap.  vii. 

makes  it  evident  that  the  making  of  a  net  profit 
is  not  a  proof  of  financial  success  in  Municipal 
Trade.  We  want,  in  fact,  another  word ;  and,  for 
the  purposes  of  this  discussion,  the  word,  gain,  will 
be  used  as  meaning  the  excess  of  the  net  profit 
credited  to  the  municipal  revenue  over  and  above 
the  sums  which,  though  not  actually  available  or 
credited,  would  have  been  available  and  credited 
to  the  municipal  revenues  had  the  industry  in 
question  remained  in  private  hands.  The  gain  is, 
in  fact,  a  measure  of  the  financial  advantage  to  the 
community  of  the  municipalisation  of  any  industry. 
(.5)  In  estimating  the  gain  made  by  Local 
Authorities  by  their  trading  enterprises  we  must, 
therefore,  compare  the  financial  condition  of  each 
municipal  trade  with  what  would  have  been  the 
financial  condition  of  that  industry  had  it  remained 
in  private  hands.  The  questions  involved  will  best 
be  studied  by  considering  what  may  be  expected 
to  occur  when  works  are  bought  by  a  municipality, 
assuming  that  no  change  takes  place  in  the  price 
of  the  commodities  sold,  and  being,  of  course, 
careful  to  see  that  this  latter  assumption 
introduces  no  errors.  In  these  circumstances 
exactly  the  same  gross  income  which  was  being 
received  by  the  private  company  would  after 
municipaHsation  be  received  by  the  Local 
Authorities  concerned.  Now  this  gross  income 
may  conveniently  be  divided  into  three  parts 
according  to  the  way  in  which  it  was  being  dis- 
bursed by  the  private  company ;  namely  into  the 
amounts  disbursed  in  (a)  working  expenses,  (h) 
payments  to  the  municipality,  and  (c)  interest  or 
dividends    to    proprietors    or    creditors.     The    total 


CHAP.  VII.]    RATING   OF  MUNICIPAL  PROPERTY     177 

disbursements  of  a  private  company  may  normally 
be  divided  under  these  three  headings ;  and  each  of 
these  divisions  of  the  income  received  together  with 
the  corresponding  disbursements  vi^ill  be  considered 
separately  in  order  to  ascertain  what  is  likely  to 
occur  on  municipalisation. 

(6)  As  to  (a)  the  working  expenses,  whether 
they  are  high  or  low,  depends  on  the  management ; 
and,  if  the  conclusions  arrived  at  in  the  preceding 
chapter  be  accepted,  it  appears  probable  that  Town 
Councils  are  likely,  on  the  average,  to  conduct  their 
affairs  somewhat  less  economically  than  company 
directors.  Assuming  that  prices  remained  un- 
changed, we  should  thus  far,  therefore,  expect  to 
find  on  municipalisation  that  the  income  received 
was  the  same  but  that  the  disbursements  were 
greater. 

(7)  As  to  (6)  the  second  portion  of  the  receipts 
of  a  private  company  which  has  to  be  considered, 
namely  that  disbursed  in  payments  to  the  munici- 
pality, the  question  of  local  taxation  has  already 
been  mentioned.  English  Local  Authorities,  no 
doubt,  in  nearly  all  cases  intend  to  debit  their 
municipal  trading  accounts  with  a  sum  equal  to 
the  full  amount  of  the  rates  which  would  have 
been  received  from  a  private  company  if  the  works 
in  question  had  been  entrusted  to  its  management. 
All  that  need  here  be  said  is  that  if  municipalities 
do  not  charge  the  full  rates  against  their  own  works 
in  their  profit  and  loss  accounts,  then  the  net  profits 
as  shown  in  these  accounts  must  be  diminished  by 
the  amount  of  taxation  omitted  in  order  to  ascertain 
the  true  gain  on  municipahsation. 

(8)  But    with    regard    to     these     payments    to 

M 


178  RISKS  AND  GAINS  [chap.  vn. 

municipalities,  we  have  to  deal  with  a  point  far 
more  important  than  the  rates,  namely,  the  rentti 
which  are  paid  or  which  might  be  paid  by  private 
companies  to  the  Local  xViithorities ;  the  rents,  for 
example,  sometimes  paid  by  tramway  companies  to 
the  municipal  treasuries  for  the  right  to  run  cars 
through  the  streets.  The  right  to  deal  with  the 
roadways,  which  tramway  and  other  companies 
must  acquire  in  order  to  carry  on  their  businesses, 
constitutes  a  very  valuable  concession,  and  confers 
on  its  owner  the  monopoly  of  the  trade  in  question 
in  the  district  occupied  ;  and  any  payment  to  the 
municipal  treasury  made  in  consequence  of  such  a 
concession  may  be  regarded  as  a  rent  payable  for 
the  monopoly  thus  granted.  But  the  amount  of  the 
rent  which  a  company  would  be  wilUng  to  pay 
would  depend  on  the  terms  of  the  concession.  If 
high  prices  or  fares  might  be  charged,  then  a  high 
rent  could  very  likely  be  obtained.  On  the  other 
hand,  if  sufficiently  low  fares  or  prices  were  insisted 
on  in  the  concession,  then  no  rent  would  be  obtain- 
able from  the  company,  and  the  municipal  revenue 
would  be  so  much  the  less.  But  if,  whilst  enforcing 
these  low  fares  or  prices,  the  Local  Authorities 
were  at  the  same  time  to  impose  taxation  in  a 
suitable  manner  on  the  commodity  sold  or  on  the 
tramway  travellers,  and  if  they  were  thus  to  collect 
a  sum  equal  to  the  rent  foregone,  then  the 
municipal  revenues,  the  company,  and  the  con- 
sumers of  the  goods  or  the  travellers  on  the 
tramways  would  all  be  affected  in  exactly  the 
same  way  as  if  a  higher  rent  had  been  extracted 
from  the  company,  higher  prices  or  fares  had  been 
charged,  and  no  tax  had  been  levied  by  the  Local 


CHAP.  VII.]    RENTS   PAID   TO   MT^NICIPALITIES         179 

Authorities.  Thus  these  payments  made  by  private 
companies  are  very  similar  in  effect  to  indirect 
taxation,  and  they  may  be  regarded  either  as 
taxation,  levied  indirectly  through  a  company,  or 
as  rents  payable  for  the  monopoly  rights  conferred 
by  the  concessions  granted. 

(9)  Something  more  will  be  said  in  a  subsequent 
chapter  as  to  whether  such  rents  are  or  are 
not  objectionable.  (See  chap.  xii.  pars.  9  to  11.) 
Here  it  is  sufficient  to  remark  that  if  the  rent 
levied  be  large,  then  high  fares  or  prices  must 
certainly  be  charged  by  the  company  paying  it, 
and  then  it  distinctly  partakes  of  the  nature  of 
a  tax.  Whether  such  a  tax  is  harmful  or  not 
depends  on  whether  it  would  or  would  not  be 
possible  to  raise  the  same  sum  in  some  less  ob- 
jectionable way.  I  am  aware  that  many  who  have 
studied  this  question,  including  some  of  the  highest 
authorities  of  the  Houses  of  I'arliament,  object  to 
all  such  rents.^  But,  in  my  opniion,  if  levied 
systematically  and  in  moderation,  they  are  not 
only  not  harmful,  but  are  in  certain  respects 
positively  beneficial ;  for  there  appears  to  be  no 
sufficient  reason  why  municipalities  should  not 
receive  a  moderate  return  for  all  valuable  con- 
cessions granted  to  private  proprietors.  Here, 
however,  we  can  consider  the  two  alternative 
policies  of  high  fares  and  prices  and  low  fares  and 
prices  without  deciding  which  is  best.  If  prices 
ought  to  be  so  low  that  no  rent  could  be  extracted 
from  a  private  company,  then  no  net  profit 
equivalent  to  that  rent  could  be  made  by  a 
municipality   managing   the    business    itself,    unless 

1  M.T.R.,  Qs.  342,  711,  and  1178. 


180  RISKS  AND  GAINS  [chap.  vii. 

indeed  it  raised  the  fares  or  prices.  Nothing  could 
therefore  be  gained  in  this  respect  and  in  these 
cii'cumstances  by  municipahsation.  On  the  other 
hand,  if  prices  ought  to  be  so  high  as  to  include 
a  tax  on  the  commodity  sold,  then  such  a  tax 
should  be  raised  under  both  systems  by  a  rent 
from  a  company  under  the  system  of  private  enter- 
prise, and  as  part  of  the  net  profits  of  the  industry 
if  municipalised.  In  this  case  also  municipahsation 
will  produce  no  effect  on  the  public  revenues  as 
far  as  this  portion  of  the  income  and  corresponding 
disbursements  of  private  companies  are  concerned. 
For  example,  Birmingham  has  now  leased  the  right 
to  run  trams  to  a  private  company  for  a  definite 
term  of  years,  and  the  rents  received  do  not  appear 
in  the  returns  relating  to  her  remunerative  enter- 
prises. But  if,  as  is  probable,  the  Corporation  will 
work  these  tramways  themsehes  at  the  expiry  of 
this  lease,  then  this  rental  will  disappear  from  the 
municipal  accounts,  and  the  profits  of  her  munici- 
pal trades  will  be  correspondingly  increased}  If 
this  should  prove  to  be  the  only  change  which  will 
take  place  when  these  tramways  are  municipalised, 
then  Birmingham  will  gain  nothing  whatever  by 
the  transaction. 

(10)  It  is  to  be  noted,  however,  that  if  at  the 
expiry  of  such  a  lease  as  that  granted  by  the 
Birmingham  Corporation,  the  concessions  were  leased 
again  to  a  private  company,  the  rent  then  obtainable 
might  be  either  greater  or  less  than  that  previously 
obtained.  The  terms  of  existing  concessions  make 
it  probable  that  in  such  cases  the  rent  obtainable 
on  a  renewed  lease  would  be  greater  than  that 
'  M.T.R.,  Q.  1851. 


CHAP,  vii]    RENTS   PAID   TO   MUNICIPALITIES         181 

originally  obtained.  But,  be  this  as  it  may, 
obviously  the  sinii  to  be  deducted  from  the  profits 
after  municipalisation  to  obtain  the  gain  is  the 
amount  of  rent  which  a  company  would  be  willing 
to  pay  to  the  municipality  after  the  renewal  of  the 
lease,  not  the  rent  actually  foregone.  This  distinc- 
tion is  important  because  in  many  cases  no  rent 
is  being  drawn  from  private  companies  o^^^ling 
concessions  at  the  time  their  works  are  bought 
by  Local  Authorities ;  as,  for  example,  when  gas- 
or  water-works  are  municipalised.  But,  even  in 
these  cases,  if  a  company  would  have  been  willing 
to  carry  on  the  works  on  the  same  lines  as  the 
Local  Authorities  are  carrying  them  on,  and  also 
to  pay  them  a  rent,  then  this  rent  should  be 
deducted  from  the  municipal  net  profits  to  ascertain 
what  the  community  has  really  gained  financially 
as  a  direct  consequence  of  the  abandonment  of  the 
system  of  private  enterprise. 

(11)  Besides  rents  and  taxes,  municipalities  some- 
times obtain  other  benefits  from  private  companies 
owning  concessions.  Tramway  companies  are  not 
infrequently  obliged  to  keep  part  of  the  roadway  in 
repair,  or  even  to  widen  streets ;  and  both  tramway 
and  electric-lighting  companies  often  find  themselves 
compelled  at  the  end  of  a  given  period  of  years  to 
sell  their  entire  business  to  municipalities  for  less 
than  the  total  capital  sunk  in  these  undertakings. 
In  estimating  the  gains  made  by  communities  by 
the  adoption  of  the  policy  of  municipal  trading, 
an  allowance  must  be  made  for  all  these  circimi- 
stances.  It  only  requires  care  on  the  part  of  Local 
Authorities  to  avoid  giving  a  false  impression  of 
the  gains   made   in   their   municipal   trades    by   not 


182  RISKS  AND  GAINS  [chap.  vii. 

charging  rates  against  their  works  in  the  same  way 
as  if  tliey  were  owned  by  private  proprietors.  It 
is,  however,  hardly  possible  to  include  in  municipal 
accounts  either  allowances  for  the  problematical 
rents  mentioned  in  the  preceding  paragi-aph  or 
for  the  circumstances  now  under  consideration ; 
for  such  allowances  would  be  of  the  nature  of  very 
speculative  estimates.  Nevertheless,  not  only  must 
a  full  share  of  local  taxation  be  debited  in  the 
accounts  of  municipal  trades ;  but  an  estimate 
must  be  made  of  the  rents  which  might  have 
been  drawn  from  private  companies  managing  the 
same  businesses  on  the  same  lines,  as  well  as  of 
the  money  value  of  all  the  services  which  those 
companies  might  have  been  forced  to  render  with- 
out a  corresponding  payment ;  and  these  estimated 
amounts  must  be  deducted  from  the  net  profits 
made  by  any  city  to  ascertain  what  is  the  gain 
resulting  from  the  municipalisation  of  the  various 
industries  now  under  its  management.  In  other 
words,  a  municipality  will  gain  nothing  whatever 
by  transferring  to  itself  that  portion  of  the  income 
of  a  private  company  which,  if  no  such  transfer 
were  to  take  place,  would  be  disbursed  either  in 
payments  to  the  municipal  treasury  or  in  unpaid 
public  services.  As  a  set-off  against  this,  if  any 
of  the  cost  of  inspection,  which  would  fall  on  the 
public  revenues  if  the  trades  municipalised  had 
remained  in  private  hands,  is  now  included  in  the 
cost  of  municipal  trading,  then  that  sum  should 
be  added  to  the  net  profits  of  Municipal  Trade  in 
order  to  ascertain  the  gains. 

(12)  Thus   far   we   have   been   considering  those 
portions  of  the  gross  receipts  which,  if  the  under- 


CHAP,  vii]    RISKS   AND  RATE   OF   INTEREST  183 

taking  was  in  private  hands,  would  be  paid  away 
either  in  defraying  the  necessary  expenses  connected 
with  the  business,  or  in  rents  or  other  payments 
to  the  municipahty.  The  remaining  portion  (c) — that 
payable  in  interest  to  the  share-  and  debenture- 
holders — has  now  to  be  discussed ;  and  the  ques- 
tion is  whether  this  sum,  or  any  part  of  it,  can  be 
captured  for  the  benefit  of  the  public  by  the 
municipalisation  of  any  industry.  In  considering 
this  subject,  we  shall  be  dealing  with  two  questions 
of  considerable  importance.  The  first  is  the  risk 
inherent  in  every  business  enterprise  ;  and  the  second 
is  the  statement  frequently  made  that  the  profits 
of  municipal  undertakings  are  due  to  the  low  rate 
of  interest  at  which  municipalities  can  raise  loans.^ 
(13)  When  a  municipality  undertakes  to  manage 
any  commercial  enterprise  it  may  either  start  the 
business  de  novo,  or  it  may  buy  up  some  exist- 
ing undertaking.  The  normal  procedure  in  the 
latter  case,  which  will  here  first  be  discussed,  is  as 
follows.  A  Town  Council  raises  money  by  loan, 
and,  with  the  sum  thus  raised,  a  business,  such 
for  example  as  gas-works,  is  purchased  from  tlie 
private  company  which  had  hitherto  managed  it. 
As  we  are  not  now  considering  either  the  pay- 
ments into  the  municipal  treasury  or  the  outgoing 
expenses,  we  must  assume  that  before  municipalisa- 
tion the  private  company  was  not  paying  a  rent 
or  rendering  any  unpaid  service  to  the  mimicipality, 
and,  moreover,  that  it  was  not  so  circumstanced 
that  either  rent  or  unpaid  services  could  have  been 
extracted  from  it ;  and  also  that  after  mimicipalisa- 
tion  the  management  becomes  neither  more  nor  less 

1  M.T.S.,  Q.  1899. 


184  RISKS  AND  GAINS  [chap.  vii. 

efficient.  And  the  question  then  is  whether,  in 
these  circumstances,  the  community  can  gain  any 
financial  advantages  by  the  municipahsation  of  such 
an  industry. 

(14)  If  a  landowner  raises  a  sum  of  money  on 
mortgage  from  his  banker  at  3  per  cent.,  and  with 
it  buys  shares  in  some  industrial  concern  paying 
8  per  cent,  on  the  purchase  money,  he  obtains  an 
income  of  5  per  cent,  on  the  money  borrowed  as 
long  as  that  happy  condition  of  affairs  lasts.  But 
if,  instead  of  speculating  in  this  industrial  enter- 
prise, the  sum  raised  by  him  were  invested  in 
railway  debentures  paying  3  per  cent.,  he  would 
make  notliing  whatever  by  the  transaction.  The 
reason  is  obvious.  The  investing  public  makes  an 
estimate  of  the  risk  attached  to  the  industrial 
enterprise  in  question ;  and,  if  8  per  cent,  can  be 
made  by  buying  shares  in  other  concerns  to  which 
no  more  risk  is  held  to  be  attached,  then  no 
investor  will  give  for  the  shares  in  this  industrial 
entei^prise  a  price  so  high  that  they  will  bring  him 
in  a  lower  rate  of  interest  than  8  per  cent.  The 
interest  paid  on  the  purchase  money  is,  in  fact,  a 
measure  of  the  risk  as  estimated  by  the  commercial 
world.  This  is  true  for  industrial  shares  and  railway 
debentures,  and  the  same  kind  of  considerations 
govern  the  rate  of  interest  which  the  banker 
demands  for  loaning  out  his  money  to  the  landlord. 
The  banker,  in  fact,  makes  about  the  same  estimate 
of  the  soundness  of  the  security  offered  by  the 
landlord  that  the  debenture-holders  do  with  regfard 
to  the  security  offered  by  the  railway  company ; 
and,  consequently,  the  landlord  has  to  pay  his 
banker  about   the   same   rate   of   interest  that   the 


CHAP,  vii]  PROFITS   AND  RISKS  185 

railway  company  has  to  pay  its  debenture-holders. 
Thus,  if  the  landlord,  when  investing  the  money 
he  borrows,  does  not  accept  a  risk  greater  than 
that  attached  to  the  security  he  offers,  he  cannot 
hope  to  make  any  profit  whatever  by  the  transac- 
tion ;  and  the  greater  the  risk  he  accepts,  the 
greater  will  be  his  possible  gains,  though,  of  course, 
the  more  likely  is  he  to  lose  considerably. 

(15)  The  foregoing  explanation  of  speculative 
profits  and  losses  will  be  readily  accepted ;  yet 
comparatively  few  people  appear  to  recognise  that 
the  purchase,  for  example,  of  gas-works  at  their 
market  value  by  a  municipality  with  money 
borrowed  in  the  money-market  is  a  transaction 
of  a  very  similar  character  to  that  just  described. 
This  can,  however,  hardly  be  denied ;  and,  if  this 
be  so,  it  follows  that  nothing  could  be  made  by  the 
municipalisation  of  gas-works  if  the  shares  of  the 
gas  company  were  considered  by  the  public  to  be 
as  sound  an  investment  as  the  town's  debts.  If 
that  were  the  case,  the  rate  of  interest  received  by 
the  gas  company's  shareholders  would  be  no  higher 
than  the  interest  paid  by  the  town  to  its  bond- 
holders ;  and  for  every  £100  borrowed  by  the 
town,  the  municipality  would  have  to  pay  away 
in  interest  as  much  as  they  would  receive  in  profits 
for  every  £100  paid  as  purchase  money.  We  have 
here  for  the  time  being  omitted  the  question  of 
sinking  funds;  but,  putting  this  aside,  and  also 
all  questions  connected  with  municipal  rent  and 
management,  it  follows  that  the  niunicipcd  revenues 
can  only  he  increased  by  a  'policy  of  municipal 
trading  if  there  was  some  risk  attached  to  the  industries 
purchased. 


186  RISKS  AND  GAINS  [chap.  vii. 

(16)  The  foregoinp^  is,  I  believe,  in  the  main, 
a  correct  statement  of  tlie  case  as  regards  the  effect 
of  risk  on  the  profits  of  municipal  enterprise.  It 
may,  however,  be  urged  that  the  greater  prestige 
attached  to  municipalities,  which  probably  means 
the  wider  field  from  which  they  can  hope  to  raise 
their  funds,  enables  them  to  raise  loans  at  a  lower 
rate  of  interest  than  that  which  private  companies 
have  to  pay,  quite  independently  of  all  question 
of  risk ;  and  that  this  accounts  in  a  measure  for 
the  profits  made  by  municipalities  with  borrowed 
money.  There  is,  no  doubt,  some  truth  in  this 
argument ;  for  the  advantages  thus  gained  by 
municipalities  are  somewhat  similar  to  the  advan- 
tages gained  in  this  respect  by  large  firms  when 
buying  out  their  smaller  rivals.  But,  as  regards 
the  relative  prestige  of  municipalities  and  companies, 
the  effect  is  not  likely  to  be  so  great  as  first  im- 
pressions might  lead  us  to  think ;  for,  as  a  rule, 
large  municipalities  have  to  buy  up  large  and  well- 
known  industrial  concerns,  the  smaller  businesses 
being  purchased  by  the  smaller  towns.  Some  of 
the  ^Metropolitan  Gas  Companies,  for  example,  are 
so  well-known  that  there  is  but  little  margin  for  a 
rise  in  the  value  of  their  shares  by  becoming  more 
widely  known.  No  doubt,  however,  municipal 
prestige  does  make  it  possible  for  a  municipality 
to  gain  something  by  municipal  enterprise  without 
incurring  a  con-esponding  risk,  though  I  suspect 
the  gain  made  in  this  way  is  but  small. 

(17)  But  the  important  point  to  note  is  that 
the  main  difference  between  the  interest  paid  by 
municipalities  and  the  interest  paid  on  shares  in 
private  gas-works  has  nothing  to  do  with  prestige, 


CHAP,  vir.]  INTEREST   ON   LOANS  187 

and  is  entirely  dependent  on  the  risks  run.  If  a 
Town  Council  were  to  borrow  money,  and  if  it 
were  to  make  the  interest  solely  payable  out  of 
the  profits  made  by  the  gas-works  bought  with  the 
sum  thus  raised,  then  few  will  doubt  that  a  higher 
rate  of  interest  would  have  to  be  paid  than  would 
be  necessary  in  the  case  of  the  ordinary  municipal 
debts,  the  security  for  which  is  limited  in  no 
such  way.  Prestige  certainly  does  not  enter  into 
the  comparison  between  these  two  methods  of 
raising  municipal  loans ;  and  the  difference  between 
the  interests  paid  in  the  two  cases  would  be  solely 
due  to  the  possibility  that  the  municipal  gas-works 
might  become  less  profitable  in  future.  If  gas- 
works were  bought  with  money  raised  by  a  loan 
with  the  profits  on  the  gas-works  as  sole  security, 
the  town  would  suffer  no  loss  if,  for  example,  gas 
should  be  largely  superseded  by  electricity ;  the 
holders  of  the  special  municipal  stock  would,  in 
that  case,  not  receive  their  full  rate  of  interest, 
and  they  would  be  the  suflferers.  Thus  the  excess 
of  interest  paid  on  a  loan  raised  on  the  sole 
security  of  the  gas-works  over  and  above  the 
interest  paid  on  ordinary  loans  would  best  be 
regarded  by  the  municipality  as  an  insurance 
against  any  losses  that  might  be  made  on  this 
trading  enterprise ;  for,  by  paying  this  excess  of 
interest  these  losses  would  be  made  to  fall  on 
others.  But,  if  the  gas-works  had  been  allowed 
to  remain  in  private  hands,  in  this  case  also  the 
town  would  not  suffer  any  loss  from  the  business 
becoming  less  profitable,  and  it  would  be  insured 
equally  well  against  this  risk.  Thus,  when  any 
industry  is  municipalised,  part  of  the  profits  which 


^ 


188  RISKS  AND  GAINS  [chap.  vii. 

may  accrue  to  the  public  may  be  said  to  be  due 
to  the  municipahty  not  insuring  against  a  risk 
against  which  insurance  is  made  as  long  as  the 
works  remain  in  private  hands.  If  a  business  firm 
ceased  to  insure  against  fire,  its  profits  would 
show  a  corresponding  increase  as  long  as  no  fire 
occurred.  Could  that  firm  instance  this  increase  of 
profits  as  a  proof  of  the  wisdom  of  its  conduct  ? 
Obviously  not.  But  is  it  any  more  sound  for  a 
municipality  to  claim  the  whole  of  the  profits  of 
their  municipal  trades  as  a  proof  of  the  wisdom 
of  their  policy  when  part  of  that  profit  is  due  to 
the  acceptance  of  a  risk  formerly  guarded  against  ? 
In  fact,  in  quoting  the  statistical  results  of 
Municipal  Trade,  that  part  of  the  profit  which 
should  be  regarded  as  an  insurance  fund  against 
risks  must  not  be  included  in  the  gains. 

(18)  If  a  firm  of  shipowners  insures  each 
separate  ship  by  putting  aside  a  sum  just  sufficient 
to  cover  the  risk,  and,  if  a  large  number  of  ships 
are  thus  insured,  the  total  sum  put  aside  in  each 
year  will,  on  the  average,  be  the  same  as  the 
amount  which  will  be  paid  away  in  that  same 
year  in  making  good  the  losses  sustained.  In 
somewhat  the  same  way,  a  large  part  of  the  net 
profits  which  municipalities  may  make  on  their 
gas-works,  water- works,  tramways,  etc.,  should  be 
regarded  as  an  insurance  fund  to  cover  such  losses 
as  those  which  may  be  made  on  municipal  piers, 
harbours,  workmen's  dwellings,  etc.  This  fund 
should  be  put  aside  to  cover  any  loss  in  the  muni- 
cipal enterprises  undertaken  by  the  same  Local 
Authority ;  and,  with  this  end  in  view,  it  may 
appropriately   be   utilised   in   paying   off  the   muni- 


CHAP.  VII.]  SPECULATIVE   PROFITS  189 

cipal     trading     debts,    and    in    thus    lessening    the 
chances  of  losses  being  made  subsequently. 

(19)  We  have  seen  that  the  gains  made  by 
municipalities  in  their  trading  enterprises  resemble 
the  gains  made  by  a  landlord  investing  in  industrial 
securities  money  borrowed  on  a  mortgage  on  his 
estate ;  and  we  should  therefore  enquire  more  closely 
to  what  circumstances  any  gains  which  may  thus 
be  made  are  in  reality  due.  It  appears  to  me  that 
these  gains  may  be  said  to  be  due  either  to  ex- 
ceptional knowledge  or  wisdom,  or,  in  popular 
language,  to  luck  or  chance.  The  landlord's 
judgment  of  the  value  of  the  shares  bought 
with  the  money  raised  on  mortgage  may  be  more 
sound  and  reliable  than  that  of  the  business 
world,  or  he  may  know  certain  facts  which  are 
not  generally  known ;  and,  if  he  have  either  of 
these  advantages,  he  will  often  be  able  to  buy 
shares  at  below  what  would  be  their  market  price 
if  all  investors  were  as  wise  as  he,  or  if  all 
the  facts  known  to  him  about  the  industry  were 
known  to  every  one.  In  these  circumstances  his 
profits  therefore  might,  in  part  at  all  events,  be 
said  to  be  due  to  his  greater  wisdom  or  know- 
ledge. But  if  the  landlord  cannot  claim  any  special 
superiority  in  these  respects,  we  must  next  enquire 
whether,  on  the  average,  the  interest  he  will  get 
by  investing  his  money  in  the  shares  of  various 
companies,  all  with  some  risk  attached,  will  be 
higher  or  lower,  taking  his  losses  into  account,  than 
the  interest  he  has  to  pay  on  liis  mortgage.  This 
is  in  reahty  the  same  question  as  asking  whether 
it  is  the  more  or  the  less  risky  investments  which 
on  the  average  and  in  tlie  long  run  return  to  the 


190  RISKS  AND  GAINS  [chap.  mi. 

investor  the  higlier  rate  of  interest.  In  order  to 
answer  this  question  we  liave  to  consider  which  of 
two  motives  acting  on  human  nature  will  have  the 
greater  influence.  Will  the  hope  of  a  high  rate  of 
interest  drive  up  the  prices  of  risky  in\'estments 
so  high  that  the  average  rate  of  interest  obtained 
by  the  investor,  taking  his  losses  into  account,  will 
be  lower  than  the  rate  he  would  obtain  if  he 
invested  in  less  risky  concerns  and  had  fewer 
losses  ?  If  so,  the  .speculator  with  borrowed  money 
will  lose  in  the  long  run.  Or  is  the  fear  of  loss 
so  deterrent  that  those  who  do  venture  into  the 
more  risky  fields  really  obtain  a  higher  rate  of 
interest  on  the  average  ?  If  so,  the  speculator 
must  gain  in  the  long  run.  According  to  the  best 
authorities,  these  two  influences  nearly  balance  each 
other,  though  the  latter  is  somewhat  the  stronger ; 
and  the  interest  obtained  from  investments  in  risky 
undertakings  is  in  the  long  run  but  very  httle  greater 
than  the  interest  obtained  from  investments  in  less 
speculative  ventures.  Thus  if  a  landlord,  with  tlie 
average  knowledge  possessed  by  the  business  world, 
raises  money  by  mortgage,  and  invests  it  in  a  large 
number  of  securities  all  involving  some  risk,  he  will 
And  that  in  the  long  run  he  gains  a  little  by  the 
transaction ;  but  it  will  be  but  a  veiy  little.  It 
follows  that  if,  on  the  average,  he  gains  very  httle, 
then,  as  regards  each  individual  transaction,  it  is 
not  far  from  an  even  chance  whether  he  gains  or 
loses.  About  half,  or  a  very  little  more  than  half, 
of  his  investments  will  be  lucky,  and  about  half, 
or  a  very  httle  less  than  half,  will  be  unlucky.^ 

1  See  "Dictionary  of  Economics,"  Palgrave,  Aleatory  and  Eisk,  by  Prof. 
Edgeworth. 


CHAP.  VII.]  SPECULATIVE   PROFITS  191 

(20)  Thus  the  gains  of  a  private  speculator  may- 
be said  to  be  ahnost  entirely  due  either  to  wisdom 
and  knowledge  above  the  average  or  to  luck ;  and 
the  same  is  true,  I  believe,  of  municipal  enterprise 
as  regards  that  part  of  the  gains  now  under  con- 
sideration. The  discussion  on  public  as  compared 
with  private  management  has  shown  that  the 
relative  wisdom  and  knowledge  of  the  two  parties 
concerned  would  be  more  likely  to  lead  to  too  high 
rather  than  to  too  low  a  price  being  paid  on  the 
average  for  a  business  bought  from  private  pro- 
prietors by  a  municipality,  and  consequently  to 
a  decrease  in  the  public  revenues  rather  than  to  a 
gain  to  the  municipality  in  this  respect.  Even  if 
the  average  inferiority  of  elected  representatives  as 
compared  with  directors  of  companies  in  matters 
of  business  be  not  admitted,  few  wil]  be  bold 
enough  to  advocate  municipal  enterprise  on  the 
ground  of  the  special  aptitude  of  our  municipal 
councillors  for  speculation.  Wq  must  not  count 
on  any  financial  advantage  being  thus  obtained  by 
their  superior  wisdom  or  knowledge ;  and,  as  regards 
the  portion  of  the  income  of  a  private  company 
which  is  disbursed  in  interest  and  dividends,  these 
theoretical  considerations  appear  to  point  to  the 
conclusion  that  it  is  at  the  best  almost  a  matter 
of  luck  whether  a  gain  will  be  made  on  the  muni- 
cipalisation  of  any  particular  industry  or  whether 
the  public  revenues  will  be  drawn  on  to  make  up 
a  deficit. 

(21)  But  if  the  gains  made  in  any  single 
municipal  enterprise  are  so  largely  dependent  on 
unforeseeable  circumstances  or  on  luck,  it  obviously 
follows  that  we  must  always  endeavour  to  ehminate 


192  RISKS  AND  GAINS  [chap.  vii. 

this  element  by  taking  into  consideration  the  results 
obtained  in   a  large   number  of  different  municipal 
trades,  and  that   it   is   useless   to   quote   any  single 
instance  of  success   or   want  of  success  as  a  guide 
for  future  action.      In  the  following  chapter  it  will 
be   seen   that    a    good    profit    has,  on   the   average, 
been  made  by  the  municipalisation  of  gas ;  and  this 
fact,  standing  alone,  should  therefore  be  allowed  to 
influence   our  judgment   but   very   little   as   to   the 
probable    financial    results    of    municipalisation    in 
general.      This   may  be  admitted ;    but  what  is  not 
apparent  at  first  is  that   such  statistical  results  tell 
us  very  little   as   to   the   wisdom  of  municipalising 
gas  itself.      No   doubt,  experience   has   proved  that 
the   chances   of    actual    losses    being   made   by   gas 
manufacturers,  public  or  private,  is  less  than  it  was 
thought  to  be  long  ago ;  or,  at  all  events,  this  was 
true   until    electricity   began    to    make    such    great 
advances.     But  as  the   risks  appeared  to  grow  less 
and  less,  so  both  the  chances  of  making  a  consider- 
able profit  and  the  chances  of  making  a  considerable 
loss  by  speculating  in  gas  shares  or  gas-works  with 
borrowed   money   diminished   equally.      It    has,    in 
fact,    become    far    less    probable    that    the    public 
revenues   would    be    either    materially   increased   or 
materially     decreased    by    the    municipalisation    of 
existing  private  gas-works ;    but  whether  the  result 
would    be    an    increase    or    a    decrease   will    always 
depend   on  whether  the  estimate  made  by  the   in- 
vesting public  of  the  future  of  the  gas  trade  is  or 
is    not    too    sanguine,    and    whether,    consequently, 
the  price  of  the  gas  shares  is  or  is  not   too  high. 
And  of  such  questions  councillors  are  now  no  better 
able  to  judge  than  they  were  half  a  century  ago. 


CHAP.  VII.  ]  MEANING   OF  RISK  198 

(22)  There  is,  indeed,  no  little  confusion  with 
regard  to  the  meaning  of  the  word  risk.  Cities 
like  Manchester,  where  the  gas-works  have  been  in 
public  hands  for  many  years,  have  made  great 
profits  by  this  industry,  and  some  of  the  less 
thoughtful  advocates  of  municipal  enterprise  appear 
to  be  influenced  by  the  idea  that  success  proves 
that  in  reality  no  risk  was  run.  Profits,  they  would 
argue,  cannot  therefore  be  dependent  on  risk.  It  is 
true  that  to  any  one  gifted  with  a  prophetic  spirit, 
there  could  be  no  such  thing  as  risk ;  in  commercial 
matters  it  would  always  be  a  certainty  of  profit  or 
a  certainty  of  loss.  Risk,  in  the  sense  in  which 
we  are  now  using  the  word,  is  the  anticipation  of 
loss,  without  the  actual  knowledge  of  what  the 
future  will  bring.  In  the  early  days  of  the  gas 
industry  there  was  a  considerable  amount  of  doubt 
as  to  its  future,  and  JNIanchester,  by  accepting  that 
risk,  has  been  enabled  to  make  correspondingly 
large  net  profits.  Now  many  doubts  have  been 
removed ;  now  there  would  be  less  chance  of  large 
net  profits  or  large  net  losses  in  a  similar  under- 
taking; but,  until  we  can  look  into  the  future 
with  a  perfect  prophetic  spirit,  some  risk  will 
always  attend  municipal  trades,  and  the  results 
may  in  a  measure  always  be  said  to  be  due  to 
chance. 

(23)  Though  we  have  thus  far  only  been  con- 
sidering the  purchase  of  going  concerns  by  munici- 
palities, the  foregoing  arguments  are,  nevertheless, 
applicable,  with  but  little  modification,  to  municipal 
trades  in  which  the  works  have  been  actually  built 
and  started  by  Local  ^Vuthorities.  It  is  true  that 
in  this  case  any  inferiority   in   bushiess   capacity  on 


N 


i 


194  RISKS  AND  GAINS  [chap,  vil 

the  part  of  public  officials  has  an  even  more 
harmful  effect;  for  the  initial  design  and  con- 
struction of  the  works  is  then  in  their  hands.  On 
the  other  hand,  some  of  the  expenditure  which 
must  accompany  the  promotion  of  private  companies 
will  be  saved  when  municipal  trades  are  promoted 
by  Local  Authorities.  As  to  the  way  in  which 
the  comparison  is  affected  by  possible  payments  by 
private  proprietors  into  the  municipal  treasury,  little 
further  need  be  said.  If  the  Local  Authorities 
concerned,  instead  of  building  for  themselves,  had 
offered  a  concession  to  a  private  company  enabhng 
it  to  carry  on  the  business  in  question,  then  that 
company  could  have  been  induced  to  pay  such  a 
rent  as  would  have  reduced  their  probable  gross 
profits  so  as  to  make  them  equal  to  the  normal 
commercial  gi'oss  profits  on  enterprises  involving 
the  same  risks.  When  a  rent  could  have  been 
obtained  by  a  municipality  without  undertaking 
the  management  of  the  works  themselves,  the  sum 
thus  obtainable  cannot  ob\iously  be  included 
amongst  the  advantages  resulting  from  that 
management.  In  other  words,  in  discussing  the 
gain  made  in  any  municipal  trade,  we  must  either 
deduct  the  estimated  rent  obtainable  from  pri^'ate 
proprietors  from  the  net  profits,  or  we  must  take 
into  consideration  the  purchase  of  works  which 
are  making  not  more  than  a  normal  rate  of 
interest  on  the  purchase  money.  No  doubt,  the 
risk  is  greater  as  a  rule  when  works  are  first  built, 
because  of  the  uncertainty  as  to  the  growth  of 
the  town,  and  because  of  the  chances  of  errors  in 
estimating  the  cost  of  construction ;  and,  conse- 
quently, in  these  circumstances,  a  somewhat  higher 


CHAP,  vii]      THE   UNEARNED  INCREMENT  195 

estimated  rate  of  interest  is  normally  necessary  to 
induce  private  investors  to  take  shares.  IMunici- 
palities  which  decide  to  build  their  own  works 
rather  than  to  wait  to  buy  up  a  going  private 
concern  will  be  undertaking  the  more  risky  enter- 
prise, and  will,  therefore,  have  a  greater  chance  both 
of  making  a  considerable  gain  in  case  of  success 
and  of  adding  considerably  to  the  taxation  in  case 
of  failure.  But  the  reasons  previously  given  for 
believing  that  these  contingencies  approximately 
cancel  one  another  still  hold  good ;  and  the  average 
results  of  Municipal  Trade  will  not  differ  materially 
whether  the  works  are  bought  or  built. 

(24)  When  any  town  increases  in  size  and 
population,  any  right  granted  by  its  authorities  to  a 
private  company  enabling  it  to  retain  a  monopoly  in 
its  hands  in  perpetuity  will  as  a  rule  tend  gradually 
to  increase  in  value ;  and  this  increase  in  value  tluis 
passing  into  the  hands  of  private  proprietors  is  often 
described  as  the  *'  unearned  increment."  It  has 
been  asserted  that  INIunicipal  Trade  affords  the  best 
method  of  "  capturing  the  unearned  increment,"  and 
of  making  it  pass  into  the  public  treasury ;  and,  in 
order  to  deal  with  this  argument,  it  is  necessary  to 
revert  for  a  short  while  to  questions  connected 
with  the  granting  of  concessions  to  private  com- 
panies. 

(25)  When  Local  Authorities  grant  to  electric 
lighting  companies,  for  examj)le,  the  riglit  to  inter- 
fere with  the  roadways,  it  has  been  seen  that  the 
bargain  then  made  should  include  regulations  as  to 
the  price  at  which  electricity  is  to  be  supphed  to 
the  pubhc.  For  the  purposes  of  illustration  let  it 
be  assumed,  in  the  first  place,  that  a  maximum  price 


J96  RISKS  AND  GAINS  [chap.  vii. 

only  is  named ;   although  a  perpetual  concession   of 
this    type   would    in    reality   constitute    a    very   in- 
judicious bargain.     Such  a  concession  would  amount 
to   the  city  saying  to   the   promoters   of  a   private 
company  that   they   might,  if  they  liked,  take  the 
risks    invohed    in    selling    electricity    at    the    price 
named  ;  that,  if  they  did  so,  and  if  the  anticipation 
of  danger  which  created  the  sense  of  risk  proved  to 
be   well  founded,  why,  so  much  the  worse  for  their 
shareholders ;    whereas,    if   the   risks   proved    to    be 
illusory,  the    company  might    reap  the   full    results 
of    their    good    luck.      Terminable    concessions    are 
now,  however,  always   granted   to   electric   lighting 
companies,  and,  under  them,  the  Local  Authorities 
concerned  retain  the   right   at   the   end   of  a   given 
period   either   to   make    a    fresh    bargain   with    the 
company,  or  to  assume  the  management  of  the  works 
themselves.     Such  a  concession  is  equivalent  to  the 
municipality  saying  to  the  private  proprietors  accept- 
ing it  that  they  must  for  a  certain  term  of  years  take 
all   the  risks  involved  in  accepting  a  perpetual  con- 
cession ;  and  that,  if  the  industry  should  prove  to  be 
in  a  prosperous  state  at  the  end  of  the  concession 
period,  then   the  city  would  step   in  and   reap  the 
greater  part  of  the  fruits  of  their  successful  efforts. 
It  is  clear  that  this  latter  bargain  would  not  be  as 
attractive  as  a  perpetual  concession  to  the  hivesting 
public,  and  that,   in   order  to  attract  the  necessary 
capital,    it  would   have   to   be   accompanied   by  the 
prospects    of    larger    dividends    in    the    immediate 
future.       Thus     Local     ^Authorities     must     permit 
companies    working    under    terminable    concessions 
at  first   to  charge  higher  prices  than  need   be  per- 
mitted  under  perpetual   concessions ;    though,   after 


CHAP.  viL]  CONCESSIONS   AND   PRICES  197 

the  riglit  to  make  a  new  bargain  at  the  end  of  the 
concession  period  had  been  exercised,  prices  might 
very  hkely  be  reduced  to  below  what  they  would 
have  been  had  a  perpetual  concession  existed. 

(26)    Something    more   than   a   mere    maximum 
of  prices  has,  however,  as   a  rule  been   included  in 
perpetual  concessions  granted  in   England ;  for  they 
have  generally  contained  clauses  intended  to  secure 
to  either  the  consumer  or  the   ratepayer   a   certain 
share  in  the  increase   of  wealth  resulting  from   the 
industry    in    question    becoming    more    prosperous. 
In  concessions   to   gas-works,   for   example,  there  is 
usually  a   sliding  scale  of  prices  under  which  com- 
panies are  forced   to   lower   their    prices  with   each 
increase  in  the  rate  of  dividend  paid  to  their  share- 
holders.    In  the  case  of  water- works  there  is  usually 
a   statutory  limitation  to  dividends,  which  prevents 
the  possibility  of  an   increase   in   the   value   of  the 
shareholders'  property  beyond  a  certain  limit.     And, 
lastly,    when    new    capital    is     required     by     these 
companies,    the   shares   issued   have   to   be   sold   by 
auction,  and  the  proceeds  have  all  to  pass  into  the 
capital     account,     a     method     of     preventing     the 
previously  existing   shareholders   from   gaining   any- 
thing by  the  absorption   of  the   premium  at  which 
shares   might   be   issued.     These   are,   however,  but 
incomplete   and    unsatisfjictory   methods   of    dealing 
witli    the    question.      No    concession    can    possibly 
make    suitable    provisions     for    all    future    contin- 
gencies ;     and     it    is     most    desirable     that     Local 
Authorities  should  be  able  by  means  of  terminable 
concessions   to   make   new   bargains    from    time    to 
time     with     the     private     owners     of    monopolies. 
Sliding    scales    of   prices,    etc.,    might    be    ad  van- 


198  RISKS  AND  GAINS  [chap.  vii. 

ta^eoiisly  included  in  these  terminable  concessions ; 
but  tlie  effect  of  their  bein<(  terminable  would, 
nevertheless,  be  to  make  the  pri\ate  proprietor  more 
anxious  about  the  arrangements  for  the  immediate 
future  and  less  anxious  about  tlie  distant  future. 
Prices  under  terminable  concessions,  however  care- 
fully framed,  will,  therefore,  normally  tend  to  be 
higher  in  the  earlier  years  and  lower  after  a 
time  than  they  would  have  been  had  the  Local 
Authorities  concerned  granted  a  perpetual  con- 
cession of  a  similar  type  in  other  respects. 

(27)  Passing  on,  after  these  preliminaries,  to  the 
question  of  the  capture  of  the  unearned  increment 
by  means  of  INlunicipal  Trade,  let  us,  in  the  first 
place,  take  the  case  of  a  municipality  initiating  its 
own  works.  In  this  case  the  community  will  reap 
the  full  benefit  of  any  increase  of  profits  due  to  an 
increase  of  population  or  to  any  other  extraneous 
cause ;  but  they  will  also  bear  the  full  weight  of 
any  losses  that  may  be  sustained  from  such  causes. 
They  will  capture  the  whole  of  any  increment, 
earned  or  unearned  ;  but  they  will  also  capture  the 
whole  of  any  unearned  decrement ;  and,  if  the  word 
"  increment "  be  interpreted  in  the  same  sense  as 
the  word  "gain,"  the  increments  are,  as  we  have 
seen,  likely,  on  the  average,  to  be  nearly  exactly 
balanced  by  the  decrements.  It  is  true  that  one 
circumstance  was  not  taken  into  account  in  the 
foregoing  discussion  on  mimicipal  gains.  The 
price  of  shares  of  private  companies  is  decided  by 
the  risk  as  estimated  by  the  investing  public ;  and 
the  investing  public  are  apt  to  be  too  much  guided 
in  making  such  estimates  by  the  prospects  of  the 
immediate    as    compared    with    the    more    distant 


CHAP,  vii]      THE   UNEARNED  INCREMENT  199 

future.  Thus,  even  if  a  municipality  buys  works 
at  their  full  market  value,  the  price  paid  will  prove 
in  the  more  distant  future  to  have  been  a  low 
one,  granted  a  continued  increase  in  population 
or  other  circumstances  making  for  commercial 
prosperity ;  for  this  ultimate  increase  of  prosperity 
will  not  have  increased  the  value  of  the  shares 
at  the  time  of  the  purchase  as  much  as  it  should 
have  done  even  if  it  miglit  then  have  reasonably 
been  anticipated.  It  should,  however,  be  noted 
that  if  industries  generally  are  likely  in  the  distant 
future  to  be  less  prosperous  than  they  are  at 
present,  then  the  price  paid  for  going  works  will 
be  too  high,  and  Municipal  Trade  will  tend  to 
increase  local  taxation  in  the  future.  Possibly  we 
may  be  right  in  framing  our  policy  on  the  assump- 
tion of  a  continued  increase  in  the  prosperity  of 
industries  tending  to  become  monopolies  in  towns ; 
and,  on  that  assumption,  the  initiation  of  works 
by  Local  Authorities  will  enable  them  to  "  capture 
*'  an  unearned  increment "  which  would  have  passed 
into  the  hands  of  private  proprietors,  if,  instead 
of  the  municipality  undertaking  the  business,  a 
p&tyetual  concession  were  granted  to  a  private 
company.  But  if  a  tcnninahh  concession  had  been 
granted,  then  tlie  probable  profits  in  the  more 
distant  future  would  not  have  entered  into  the 
question  at  all ;  and,  by  granting  such  a  concession, 
the  municipality  would  have  captured  the  unearned 
increment  exactly  as  well  as  by  managing  the  works 
themselves. 

(28)  As  to  the  purchase  of  works  by  munici- 
palities from  companies  owning  perpetual  conces- 
sions,  it  is  obvious  that  any  increase  of  prosperity, 


200  RISKS  AND  GAINS  [chap.  mi. 

wliich  liad  iictually  tsiken  place  before  the  purchase 
was  made,  would  be  iiuUcated  by  a  rise  in  tlie 
market  price  of  the  shares ;  and  the  unearned  in- 
crement of  the  past  would  therefore  pass  into  the 
hands  of  the  vendors  when  they  sold  their  business. 
Not  only  would  this  Ije  the  case,  but  the  probable 
increase  in  prosperity  in  the  more  immediate  future 
would  also  affect  the  price  paid,  and  in  this  way 
the  unearned  increment  of  this  more  inmiediate 
future  would  probably  be  discounted  and  would 
pass  to  the  vendors.  But  on  the  assumj)tion 
that  the  business  would  continue  to  increase  in 
prosperity  for  a  considerable  time,  the  municipality 
would,  it  is  true,  gain  in  the  distant  future  by  such 
a  purchase ;  but  this  gain  could  be  made  equally 
well  either  by  the  municipality  undertaking  the 
management  of  the  purchased  works  itself  or  by 
granting  a  terminable  concession  to  the  vendors  or 
to  some  other  company.  What  is  essential  to  the 
capture  of  the  unearned  increment  in  this  sense  is 
not  Municipal  Trade  but  the  abolition  of  bargains 
made  in  perpetuity  with  private  owners. 

(29)  We  have  seen  that  in  the  case  of  mon- 
opolies the  price  of  the  connnodities  sold  will  be 
lower  at  first  and  higher  afterwards  if  a  perpetual 
concession  has  been  granted,  than  they  woidd  have 
been  had  a  terminable  concession  been  granted. 
^^'^llen  a  prosperous  company  arrives  at  that  period 
of  its  existence  when  prices  are  higher  because  of 
the  perpetual  nature  of  its  concession,  it  generally 
becomes  apparent  that,  if  the  Local  Authorities 
concerned  had  not  found  themselves  ''  hampered " 
by  a  bargain  of  bygone  years,  they  would  have 
been  able  to   force  the  company  to  sell  at  cheaper 


CHAP  vTi  ]      THE   UNEARNED   INCREMENT  201 

prices  whilst  still  allowing  them  to  make  a  "  reason- 
"  able  "  profit.  In  these  circumstances  the  capture  of 
this  unearned  increment  is  likely  to  be  demanded : 
for  it  will  only  be  but  a  small  minority  who 
will  perceive  what  such  a  capture  would  really 
amount  to.  Putting  aside  the  errors  of  judgment 
of  the  investing  public  in  not  taking  the  distant 
future  sufficiently  into  account,  no  "  unearned  in- 
"  crement "  would  be  gained  by  the  purchase  with 
bon'owed  money  of  the  shares  of  a  company  owning 
a  perpetual  concession  at  the  market  price  at  which 
they  would  stand  on  the  assumption  that  the 
bargain  between  the  municipality  and  the  company 
would  continue  to  hold  good ;  and  any  certain 
capture  of  the  unearned  increment  must  mean  the 
municipality,  whilst  taking  advantage  of  its  bargain 
with  private  proprietors  so  long  as  the  community 
were  thus  being  benefited,  arbitrarily  violating  it 
when  it  appeared  that  the  tide  had  turned  in 
favour  of  those  proprietors.  A  gain  can,  no  doubt, 
be  made  by  a  municipality  by  purchasing  going 
works  at  less  than  their  market  value,  but  an  in- 
crement so  captured  is  certainly  "  unearned  "  by  the 
community  capturing  it. 

(30)  Thus  it  appears  that  the  unearned  increment 
can  always  be  captured  by  the  granting  of  termin- 
able concessions  quite  as  effectively  as  by  means 
of  Municipal  Trade ;  and  that  no  honest  arrange- 
ment for  capturing  it  can  be  made  without  some 
corresponding  increase  of  risk.  The  moral  of  tliis 
discussion  is  not  that  Municipal  Trade  is  good, 
but  that  perpetual  concessions  are  bad.  They  are 
bad  because,  as  we  have  just  seen,  they  put  a 
temptation  in  the  way  of  a  community  to  capture 


202  RISKS  AND  GAINS  [chaf.  vii. 

Jin  unearned  inerement  by  breaking  a  bargain,  a 
capture  which  may  be  supported  by  very  plausible 
arguments ;  anci  they  are  bad  for  other  reasons 
which  will  be  considered  in  a  subsequent  chapter. 

(31)  In  the  foregoing  discussion  on  the  capture  of 
the  unearned  increment,  we  have  assumed  that  works 
will  be  purchased  at  not  less  than  their  market 
\'alue.  A  very  difficult  practical  question,  no  doubt, 
arises  as  to  the  extent  to  which  the  market  price 
should  regulate  the  purchase  money  in  cases  where 
it  can  be  proved  that  the  concession  for  a  municipal 
monopoly  has  been  obtained  by  fraud  or  corruption. 
As  to  all  other  cases,  anything  in  the  nature  of 
confiscation  would  be  both  inexpedient  and  im- 
moral ;  and  it  is  only  the  question  of  expediency 
which  raises  the  doubt  as  to  what  should  be  done 
in  the  case  of  improperly  acquired  concessions.  It 
is  usually  very  difficult  for  the  original  shareholders 
in  private  companies,  and  still  more  difficult  for 
the  subsequent  purchasers  of  shares,  to  ascertain 
whether  or  not  fraud  or  corruption  was  practised 
when  the  company  was  acquiring  its  rights ;  and 
the  confiscation  of  fraudulently  acquired  concessions 
would  tend  to  discourage  investors  in  all  such 
enterprises,  whether  conducted  properly  or  not. 
It  is  the  best  policy  for  a  municipality  not  only 
to  be  honest,  but  to  maintain  every  appearance  of 
honesty. 

(.32)  ^Vctual  confiscation  is  not  often  advocated  ; 
but  the  suggestion  is  frequently  made  that  the 
private  owners  of  monopohes  are  making  excessive 
profits,  and  that  these  excessive  profits  should  not 
be  taken  as  a  basis  for  valuing  their  property  for 
compulsory    purchase.       In    many    cases    the    high 


CHAP.  VII.]       VALUATION   FOR   PURCHASE  203 

rate  of  interest  is  merely  nominal ;  as,  for  example, 
when     a     gas    company    issues     new    shares    at    a 
premium.      When    this     occurs,     tlie     sliareliolders 
are   in   exactly  the  same  position  as  if  a  lower  rate 
of  interest  had  been  named,  and  a  smaller  premium 
obtained  ;  and  there  is  not,  in  such  cases,  a  shadow 
of  an  excuse  for  confiscation.     But   it   is  no  doubt 
true  that  the  rate  of  interest  calculated  on  the  cash 
originally   invested   is   often   high ;    and,   when   this 
is   the   case,   the   shares   are   certain    to   stand   at  a 
premium  in  the  market.     This  high  rate  of  interest, 
and    this   premium    resulting  from    it,    may    be  due 
to   the   business  having   been   well  conducted ;   and 
it   is   but   fair   that  a  higher   price    should   be  paid 
for  a  well   managed  concern  as  compared  with  one 
which  has  been  less  ably  conducted.     The  premium 
may  also,  as  we  have  seen,  be  due  to  a  diminution 
in   the   risk   connected   with   the   imdertaking ;  that 
is   to    say,    to    the    industry    having   proved   to    be 
more   remunerative  than  was   originally  anticipated. 
In  that   case   the   premium   is,   in   fact,  a   payment 
to    the    proprietors     for    having    taken    the     risks 
involved   in  establishing   the  industry.      If  a  public 
body    did    not    care   to   face   the   risk   of  initiating 
or    of     buying     up     any     commercial    undertaking 
in   its   more    hazardous    days,   it   would    now   be    a 
simple    act    of  robbery    on    its    part    to    buy    out 
compulsorily  the  proprietors  on  terms  which  would 
deprive  them  of  all   remuneration  for  having  taken 
these   initial    risks.      I^ocal    Authorities    must    not 
expect  at  first  to  be  able  to  get  the  safety  which 
comes  from  allowing  private  owners  to  act  as  the 
pioneers  of  commerce  and  also  later  on  to  earn  the 
same  profits  as  if  they  themselves  had  been  struggling 


204  RISKS  AND  GAINS  [chap.  vii. 

against  the  difficulties  always  experienced  in  new 
undertakings.  Lastly,  tlie  premium  may  be  due 
either  to  "  money  having  been  cheap,"  or  to  the 
price  of  materials  having  been  low,  when  the 
capital  was  first  raised  and  expended.  But  those 
who  consider  it  fair  to  allow  such  facts  as  these 
to  count  as  a  reason  for  cutting  down  the  purchase 
price  below  the  market  level  can  hardly  refuse 
to  consider  claims  which  might  be  brought  forward 
in  favour  of  industries,  the  shares  of  which  are  at 
a  discount,  being  bought  up  at  a  price  above  that 
obtainable  in  the  market  on  the  ground  that 
this  discount  was  due  to  similar  causes  acting  in  the 
opposite  direction.  In  the  case  of  owners  who 
have  recently  bought  shares  in  private  companies 
at  a  premium,  it  would  appear  to  be  even  more 
inequitable  to  buy  them  out  at  the  face  value  of 
their  holdings ;  for  these  proprietors  have  in  no 
way  benefited  by  the  rise  in  price  of  the  shares. 
Thus  in  no  circumstances  do  high  rates  of  interests 
justify  confiscation.  Concessions,  as  we  have  seen, 
should  always  contain  clauses  regulating  the  price  at 
which  the  property  could  be  bought  up  by  the  muni- 
cipality ;  but,  when  no  such  clauses  have  been  in- 
serted, the  market  value  is  the  only  equitable  guide 
to  the  price  to  be  paid  at  tlie  compulsory  purchase 
of  property  held  under  such  perpetual  concessions. 

(33)  In  this  chapter  we  have  endeavoured  to 
estimate  the  gains  which  municipalities  are  likely 
to  make  either  by  transferring  to  themselves  the 
whole  of  the  income  and  liabilities  of  existing 
private  companies  or  by  building  works  for  them- 
selves ;  the  necessary  funds  being  raised  by 
municipal  loans.     It   was   seen,   in    the   first   place, 


^ 


CHAP,  vii.]  CONCLUSIONS  205 

that  any  sums  which  were  being  paid,  or  which 
might  have  been  paid,  by  private  companies  into 
municipal  treasuries  should  not  be  included  as  a 
part  of  these  gains ;  and  that  any  expenditure 
connected  with  inspections,  which  would  have  been 
incurred  by  the  public  had  the  trades  municipahsed 
remained  in  private  hands,  should  not  be  included 
in  the  costs  of  JNlunicipal  Trade.  Making  allow- 
ances for  these  facts,  then  it  appeared  that,  on 
the  average,  the  chances  of  a  gain  being  made 
and  the  chances  of  taxation  being  increased  in 
consequence  of  JNlunicipal  Trade  would  be  about 
equal  except  for  the  following  circumstances. 
The  rate  of  interest  paid  by  municipalities  is 
slightly  lower  than  that  paid  by  companies  because 
of  their  greater  prestige ;  and  the  fact  that  some 
risk  is  always  run  in  trading  enterprises  makes 
the  average  surplus  of  profits  over  losses  some- 
what higher  than  the  interest  paid  on  municipal 
loans ;  and  for  both  these  reasons  some  little  gain 
is  likely  to  be  made  by  municipal  trades.  On 
the  other  hand,  the  less  economical  management 
of  Local  Authorities  as  compared  with  private 
proprietors  makes  it  probable  that  taxation  will  be 
increased  by  the  abandonment  of  private  trade. 
Balancing  these  opposing  tendencies,  it  appears 
probable  that  some  municipal  works  will  make 
large  gains ;  that  some  communities  will  suffer 
from  a  considerable  increase  of  taxation ;  whilst, 
on  the  average,  there  will  be  but  little  financial 
advantage  or  disadvantage  to  the  nation  resulting 
from  the  management  of  trades  by  municipalities. 
But,  in  this  discussion,  two  assumptions  have  been 
made,  neitlier  of  which   is   accurate.      In   the   first 


206  RISKS  AND  GAINS  [chap.  vii. 

place,  notliing  was  included  in  the  cost  of  municipal 
trading  on  account  of  sinking  funds ;  and,  if  the 
foregoing  conclusions  are  correct,  it  follows  that 
it  is  probable  that  the  whole  of  the  payments 
made  by  municipalities  into  sinking  funds  will, 
on  the  average,  have  to  be  raised  by  taxation. 
In  the  second  place,  it  was  assumed  that  prices 
remained  the  same  after  the  works  had  been 
purchased  by  Local  Authorities.  If,  however, 
prices  were  lowered  after  municipalisation,  this 
could  only  be  done  by  decreasing  municipal  net 
profits ;  whereas,  if  prices  were  raised,  then  the  net 
municipal  profits  would  be  correspondingly  increased. 
Finally,  it  was  seen  tliat  the  hope  of  capturing  the 
unearned  increment  gives  no  support  to  Municipal 
Trade  as  compared  with  private  trade  under  termin- 
able concessions. 


Vlll 


MUNICIPAL   STATISTICS 


(1)  In  the  preceding  chapter,  various  theoretical 
questions  connected  with  municipal  finance  have 
been  discussed  without  the  aid  of  figures,  and 
certain  theoretical  conclusions  as  to  the  financial 
advantages  which  are  likely  to  accrue  to  munici- 
palities from  their  trading  enterprises  have  been 
reached.  Although  results  thus  obtained  by  a 
priori  reasoning  are  always  unsatisfactory,  and 
although  it  would  be  far  better,  were  it  possible, 
to  decide  all  points  at  issue  by  reference  to  facts 
and  figures,  it  is,  nevertheless,  not  my  intention 
here  to  deal  exhaustively  with  municipal  statistics. 
Not  only  is  my  main  object  to  help  others  in 
studyuig  for  themselves  the  information  available, 
a  study  which  is  almost  useless  if  not  accom- 
panied by  some  theoretical  reasoning,  but  far  too 
much  weight  is  usually  placed  on  financial  results 
in  this  controversy.  The  following  discussion  will, 
it  is  hoped,  be  sufficient  to  make  this  apparent ; 
for  it  will  be  seen  that,  whether  English  munici- 
palities as  a  whole  have,  or  have  not,  gained  any- 
thing by  ISIunicipal  Trade,  it  can  hardly  be 
doubted  that  the  effect  on  local  taxation  has  been 
very   small    in    comparison    with    the    total    local 


ao7 


208  MUNICIPAL  STATISTICS  [chap.  viii. 

revenues  raised,  and  that,  consequently,  other  points 
in  this  controversy  are  far  more  important  than 
those  directly  connected  with  finance.  It  will  be 
seen,  moreover,  that  the  information  now  available 
is  sufficiently  untrustworthy  to  make  it  uncertain 
which  way  the  balance  turns  in  weighing  the 
direct  financial  results,  and  that  certain  important 
indirect  financial  results  are  of  necessity  wholly 
neglected  in  all  municipal  statistics. 

(2)  Several  plans  have  been  suggested  for  ascer- 
taining the  effect  of  Municipal  Trade  on  municipal 
finances.  The  method  which  at  first  sight  appears 
to  be  that  most  likely  to  produce  reliable  results 
would  be  to  ascertain  whether  the  miuiicipalities 
which  have  spent  most  on  remunerative  works  are 
rated  higher  or  lower  than  those  municipalities 
which  have  trusted  more  to  private  enterprise. 
JNIany  pitfalls,  however,  are  found  in  the  path  of 
this  enquiry.  In  the  first  place,  municipalities  may, 
in  comparison  with  private  companies,  habitually 
charge  lower  prices  for  the  goods  they  sell ;  and, 
even  if  the  rates  in  towns  where  Municipal  Trade 
flourishes  are  higher,  that  trade  may,  therefore, 
nevertheless  be  financially  beneficial  to  the  com- 
munity as  a  whole ;  or,  on  the  contrary,  rates  may 
be  lower,  whilst  the  financial  results  may  in  reality 
be  harmful.  Here,  however,  we  are  only  dealing 
with  the  interests  of  the  ratepayers  and  not  wdth 
those  of  the  consumers,  and  all  questions  connected 
with  price  and  quality  will  be  considered  in  the 
next  chapter.  INIunicipal  Trade  may,  moreover,  put 
a  check  on  private  trade  without  itself  increasing  to  a 
corresponding  extent,  and  in  this  way  local  taxation 
may  be  affected  without   the   result  being  rendered 


CHAP,  viii]  LOANS   AND   RATES  209 

apparent  by  this  method  of  enquiry.  It  is  neverthe- 
less a  valuable  method,  and  the  total  amount  of  loans 
raised  for  remunerative  work  for  English  boroughs  as 
given  in  the  Stock  Exchange  Official  Intelligence 
for  a  series  of  fifty-eight  towns  have  been  systemati- 
cally examined  by  jNIiss  Alice  Lee,  with  the  following 
results  :  ^- — Loans  for  remunerative  work  appear 
neither  to  be  associated  with  high  rates  nor  with  low 
rates.  But  an  increase  of  loans  is  nevertheless  asso- 
ciated with  an  increase  in  rates  ;  a  correlation  which 
may  be  illustrated  by  the  following  theoretical  cases 
for  towns  of  constant  population : — 

Case  (i.)  A  town  with  no  loan  for  remunerative 
work  : — Increase  of  rates  6d.  in  the 
£  in  14  years. 

Case  (ii.)  A  town  with  the  average  rate  of  increase 
of  loans  for  remunerative  work  : — 
Increase  of  rates  in  the  same  period 
— 8|d.  in  the  £. 

Case  (iii.)  A  town  with  twice  the  average  rate  of 
increase  of  loans  for  remunerative 
work  : — Increase  of  rates  in  the  same 
period — 10|d.  in  the  £. 

This  correlation  may  be  accounted  for  by  the  fact 
that  loans  at  first  cause  an  increase  of  taxation,  and 
later  on  a  decrease  of  taxation,  and  that  at  the  present 
date  these  two  effects  are  neutralising  each  other,  the 
net  result  being  that  taxation  is  now  unaffected  by 
remunerative  loans.  If  this  be  the  true  explanation 
it  seems  probable  that  in  future,  when  a  large  propor- 

^  A  note  on  the  Relation  between  Rates,  Expenditure  on  Remunera- 
tive Works,  and  Rate  of  Increase  of  Population  in  Fifty-eight  or  more 
British  Municipalities,  by  Alice  Lee,  D.Sc,  will,  I  hope,  shortly  be  published 
in  the  Economic  Journal. 


210  MUNICIPAL  STATISTICS  [chap.  viii. 

tion  of  tlie  existing  debts  are  paid  off,  remunerative 
work  will  be  associated  witli  a  decrease  of  taxation  ; 
tliougb  it  would  appear  that  the  existing  rapid  increase 
of  remunerative  loans  must  lead  to  an  increase  of  local 
taxation  in  the  immediate  future.  It  is,  however, 
possible  that  this  correlation  between  an  increase  of 
rates  and  an  increase  of  remunerative  loans  is  in  part 
due  to  a  correlation  between  the  desire  for  Municipal 
Trade  and  either  municipal  energy  or  municipal 
extravagance.  In  ftict,  it  can  only  be  said  that  Miss 
Lee's  very  careful  investigation  indicates  that  IMuni- 
cipal  Trade  has  at  the  present  time  no  very  material 
effect  on  municipal  taxation  in  England. 

(3)  Another  method  of  attacking  this  problem  is 
to  examine  the  actual  statistics  of  Municipal  Trade. ^ 
T'he  most  complete  and  reliable  information  is  to  be 
found  in  certain  Local  Government  Board  Returns, 
issued  in  1899  and  1902;  information  which  is  all 
the  more  valuable  for  having  been  subjected  to 
much  criticism  by  Sir  Henry  Fowler,  Mr  Row- 
Fogo,  and  others.^  These  returns  deal  with  all 
"  reproductive  "  undertakings  carried  on  by  municipal 
boroughs  in  England  and  Wales,  including  water- 
works, gas-works,  markets,  tramways,  electric  light- 
ing, piers,  quays,  and  harbours  ;  the  periods  included 
being  in  the  first  return  the  five  years  ending 
31st  March  1898,  and  in  the  second  return  the 
four  years  ending  31st  INIarch  1902.  The  follow- 
ing table  constitutes  a  brief  abstract  of  the  last 
of  these  two  returns. 

'  Eeaders  who  do  not  wish  to  wade  through  figures  should  omit  the 
remainder  of  this  chapter ;  for  they  will  find  the  general  results  here 
arrived  at  summarised  in  chaj).  ix.,  pars.  19  to  30. 

'^  "  Municipal  Corporations  (Reproductive  Undertakings),"  Returns  by 
L.G.B.,  March  1889,  No.  88,  and  Deceiul)er  1902,  No.  .398  :  Sir  Henry 
Fowler  in  Jour,  of  the  Eoyal  Stats.  Soc,  September  1900  ;  Mr  Row-Fogo  in 
Economic  Journal,  March  1901. 


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212  MUNICIPAL  STATISTICS  [chap.  vm. 

(4)  Thus  we  see  that,  as  regards  the  more 
strictly  cominercial  undertakings,  the  average  annual 
net  profit  was  .£394,825  in  the  case  of  gas-works, 
and  £81,904  in  the  case  of  tramways,  whilst  there 
was  a  net  loss  of  £11,707  in  the  case  of  electrical 
works ;  and  that  there  was  a  net  profit  of 
£300,867  on  the  total  of  all  remunerative  under- 
takings. If  nothing  more  had  to  be  said  it  would 
appear  that  this  latter  sum  of  rather  more  than 
a  third  of  a  million  sterling  is  the  average  amount 
passing  into  the  municipal  treasuries,  and  being 
thus  made  available  to  replace  some  other  source  of 
revenue. 

(5)  If,  however,  the  existing  net  profits  as  thus 
obtained  are  stated  without  any  reference  to  what  \ 
the  net  profits  will  amount  to  in  the  future,  a 
very  false  impression  of  the  results  of  Municipal 
Trade  is  given.  Municipal  debts  must  be  paid  off 
within  a  given  number  of  years,  and  when  that 
period  has  expired  in  the  case  of  all  existing  loans 
included  in  this  return,  the  sum  of  £4,199,746  now 
paid  on  the  average  for  repayments  of  principal  and 
interest  will  no  longer  be  paid.  If  the  circum- 
stances connected  with  all  these  reproductive  under- 
takings remain  unchanged,  the  net  profits  made, 
on  tlie  average,  would,  judging  by  these  returns, 
eventually  amount  to  £4,.560,613  a  year;  being  the 
sum  of  the  existing  net  profits,  £360,867,  and  the 
£4,199,746,  now  payable,  as  interest,  etc.  It  is  to 
be  observed  that  this  future  net  profit,  as  it  may 
be  called,  is  the  same  sum  as  that  entered  in  the 
abstract  under  the  heading  of  "gross  profits."  If 
these  remunerative  inidertakings  had  been  allowed  to 
remain   in  private    hands,   no  such  revenue   as   this 


CHAP.  Mil]  PERCENTAGE   OF  PROFIT  213 

future  net  profit  would  ever  have  fallen  into  the 
municipal  treasuries ;  and  it  is  therefore  obvious 
that  not  only  the  existing  net  profits  of  municipal 
trades,  but  also  the  probable  future  net  profits, 
must  be  quoted  when  we  are  endeavouring  to 
weigh  the  relative  merits  of  public  and  private 
enterprise. 

(G)  Thus  we  have  two  estimated  profits  to  deal 
with,  the  existing  and  the  future  net  profits ;  the 
future  net  profits  being  the  same  as  the  existing 
gross  profits.  But,  when  we  are  asked  to  quote 
these  profits  as  percentages,  the  question  arises  as 
to  whether  it  is  more  useful  to  quote  them  as 
percentages  of  the  total  capital  provided  or  as 
percentages  of  the  outstanding  debt.  If,  with  Sir 
Henry  Fowler,  we  calculate  the  profits,  whether 
net  „or  gross,  as  percentages  of  the  outstanding 
debt,  we  shall  obtain  a  figure  which  must  fluctuate 
irregularly,  decreasing  suddenly  when  the  capital 
on  which  the  percentage  is  calculated  is  suddenly 
increased  by  large  sums  being  borrowed,  and  in- 
creasing more  or  less  steadily  as  the  outstanding 
debt  is  diminished  by  the  redemption  of  loans ;  a 
figure,  therefore,  which  cannot  be  readily  made 
available  as  a  guide  for  the  future  when  Local 
Authorities  are  considering  the  municipalisation  of 
any  enterprise.^ 

(7)  Shall  we  then  calculate  the  profits  as  per- 
centages of  the  total  capital  provided  (  This  is, 
no  doubt,  the  most  convenient  method  as  regards 
gross  profits ;   for  it  is   to   the   point  to   know   that 

^  The  outstanding  debt  is,  I  lielieve,  moreover,  a  nominal  figure,  and 
depends  cm  whether  the  loans  were  raised  at  a  premium  or  at  a  discount. 
This  point  is,  however,  not  an  important  one. 


214  iMUNICIPAL  STATISTICS  [chap.  viii. 

the  gross  profit  on  English  gas-works  (£1,287,703), 
for  example,  amounts  to  5*4  per  cent,  on  the  total 
capital  provided  ( £24,028,1  UJ).  As  far  as  it  is  legiti- 
mate to  foretell  the  future  by  looking  to  the  past,  and 
as  far  as  these  figures  can  be  trusted,  we  are  thus 
justified  in  saying  that  municipahties  may  hope  to 
make  a  gross  profit  of  5*4  per  cent,  on  any  sum  they 
may  expend  on  the  municipalisation  of  gas-works  ; 
and  that,  many  years  after  any  such  expenditure, 
when  all  the  debts  thus  incurred  will  have  been 
redeemed,  and  when  this  5*4  per  cent,  will  have, 
therefore,  no  charge  against  it,  this  is  the  sum 
which  may  be  estimated  as  the  net  profit  which 
will  then  be  available  as  part  of  the  municipal 
revenues. 

(8)  With  regard  to  the  existing  average  net 
profit,  it  must  be  remembered  that  this  figure  is 
obtained  by  deducting  the  charges  for  repayments 
of  principal  and  interest  on  the  debts  from  the 
gross  profit;  and  it  is,  therefore,  a  figure  which 
must  change  with  every  change  in  the  amount  of 
those  charges.  ^  ery  diffei-ent  sums  from  those  now 
obtained  as  representing  the  net  profits  would 
probably  be  obtained  by  the  examination  ten 
years  hence  of  similar  returns  to  those  now  under 
examination,  even  if  the  remunerative  works  included 
were  carried  on  precisely  in  the  same  manner  as  the 
existing  works  ;  because  in  that  interval  more  money 
would  probably  have  been  borrowed,  some  debts 
would  certainly  have  been  paid  off,  and,  even  if 
the  gross  profits  remained  the  same,  different 
deductions  would  have  to  be  made  from  them  to 
ascertain  the  net  profits.  There  is,  therefore,  very 
little  to   be  gained  by  quoting  net  profits   as  thus 


CHAP,  viii]  PROFITS   ON   GAS-WORKS  215 

ascertained  in  any  sliape  or  form,  whether  as 
percentages  of  the  total  capital  provided  or  as 
percentages  of  the  outstanding  debts. 

(9)  But,  although  existing  net  profits  tells  us 
but  little,  municipalities,  considering  the  wisdom 
of  municipalising  gas-works,  for  example,  are 
naturally  anxious  to  estimate  the  net  profit 
or  loss  they  would  be  likely  to  make  by  such  a 
proceeding.  Accepting  these  returns  as  indicating 
accurately  what  will  occur  in  the  future,  it  has 
been  seen  that  the  gi'oss  profits  in  gas-w^orks  may 
be  estimated  at  5*4  per  cent,  on  the  total  sum 
to  be  expended ;  and  that,  when  all  the  loans 
are  paid  off,  this  sum  will  become  the  net  profit. 
But  the  question  is,  what  are  likely  to  be  net  profits 
whilst  the  debts  are  being  paid  off?  Or,  in  other 
words,  in  order  to  ascertain  the  estimated  pro- 
spective net  profit,  what  deductions  must  be  made 
from  this  existing  5*4  per  cent,  gross  profits  on 
account  of  payments  for  interest  and  sinking  fund 
charges  on  the  outstanding  debts.  This,  of  course, 
depends  on  the  rate  of  interest  which  will  be  paid  on 
those  loans,  and  on  the  number  of  years  allowed 
for  their  redemption ;  and  it  is  impossible  to  answer 
these  questions  without  making  various  assump- 
tions, all  of  which  introduce  possible  sources  of 
error.  The  amount  shown  in  the  foregoing  table  for 
repayments  of  principal  and  interest,  £892,938,  is 
4  8  per  cent,  on  the  outstanding  capital,  £18,497,587 ; 
and  if  we  refer  to  actuarial  tables  we  shall  see  that 
with  loans  at  3|  per  cent.,  a  municipality  must  pay 
4 -8  per  cent,  on  its  debts  to  redeem  them  in  thirty- 
two  years.  Here  we  get  an  indication  as  to  the 
conditions  which  on  the  average  now  exist  as  regards 


216  MUNICIPAL  STATISTICS  [chap.  viir. 

gas  loans,  and  the  conditions  which,  therefore,  we 
should  assume  as  likely  to  exist  in  future.  If, 
therefore,  we  assume  that  in  future  the  whole  of 
the  money  for  the  purchase  of  any  gas-works  will 
be  raised  by  one  loan ;  that  3^  per  cent,  would  be 
the  rate  of  interest  on  the  loan  if  irredeemable ; 
and  that  the  loan  will  be  redeemed  on  the  annuity 
system  in  thirty- two  years ;  it  follows  that,  out  of 
the  5*4  per  cent,  of  probable  gross  profits,  the 
municipality  in  question  will  have  to  pay  away  4*8 
per  cent,  in  repayments  of  principal  and  in  interest, 
leaving  a  surplus  of  0*6  per  cent.  In  other  words, 
judging  by  the  past  and  accepting  these  calculations, 
municipalities  should  expect  to  make  a  profit  on  new 
municipal  gas-works  of  a  little  over  one-half  per 
cent,  for  thirty-two  years,  and  5*4  per  cent,  for  ever 
afterwards. 

(10)  In  the  foregoing  calculation  3^  per  cent, 
has  been  taken  as  the  rate  of  interest  payable  on 
municipal  loans  for  gas-works  in  the  future,  although 
the  actual  rate  of  interest  paid  according  to  the 
returns  under  examination  is  a  trifle  higher.  Such 
an  assumption,  of  course,  introduces  a  possible  source 
of  error ;  for  it  may  be  that  the  rate  of  interest  will 
be  either  higher  or  lower  in  the  future.  If,  therefore, 
it  be  assumed  that  existing  conditions  remain 
practically  unchanged,  no  material  error  will  have 
been  introduced  by  this  assumption.  As  to  the 
length  of  time  allowed  for  the  repayment  of  loans, 
assumed  in  the  above  calculation  to  be  thirty-two 
years,  Parliament,  or  the  Government  Departments 
concerned,  may  alter  it  at  any  time ;  and  no  certain 
forecast  on  this  subject  is  possible. 

(11)  Later   on    it   will   be   seen   that   there    are 


CHAP.    VIII.] 


PROFITS   ON   GAS-WORKS 


21T 


many  reasons  why  existing  gross  profits  are  an 
uncertain  guide  as  to  the  gross  profits  which 
will  be  made  in  future  in  municipal  trades. 
In  connection  with  this  subject  it  is  interesting 
to  enquire  whether  there  is  any  marked  difference 
between  the  profits  made  by  industries  which 
have  recently  passed  into  public  hands  as  compared 
with  those  which  have  been  managed  by  Local 
Authorities  for  many  years.  With  this  object  in 
view,  I  have  divided  the  English  municipal  gas- 
works into  divisions,  according  to  the  dates  at 
which  the  municipalities  commenced  managing 
them.^     The  result  is  as  follows : — 


Date. 

No.  of  Works. 

Average  Annual 

Gross  Profit, 

per  cent. 

1898-1902. 

Previous  to  1860 

1860-69     .... 

1870-79  .... 
il880-89  .... 
; 1890-99      .... 

19 

9 

35 

11 

9 

6-3 
5-9 
5-4 
5-3 

4-8 

Those  municipalities  which  commenced  operations 
some  time  ago,  have,  no  doubt,  in  many  cases  added 
largely  in  recent  years  to  their  capital  expenditure  on 

1  The  capital  on  \\hicli  the  percentages  have  been  calculated  for  nie 
by  Miss  E.  Elderton  is  in  this  case  the  mean  between  the  total  capitals 
provided  as  shown  in  the  Returns  of  1898  and  1902  ;  and  in  this  way 
the  error  mentioned  in  par.  22  lias  been  avoided.  These  tigui-es  are 
not,  therefore,  strictly  comparable  with  the  5'4  per  cent,  given  as  the 
average  gross  profits  on  gas-works. 


218  MUNICirAL  STATISTICS  [chap.  viii. 

gas-works ;  and,  if  it  had  been  possible  to  classify 
the  works  according  to  the  mean  date  at  which  the 
capital  was  provided,  it  is  not  improbable  that  the 
difference  between  the  profits  made  by  the  earlier 
and  the  later  works  would  have  been  even  more 
marked.  If  we  assume  as  before  that  municipalities 
will  have  to  pay  4*8  per  cent,  for  thirty-two  years 
on  the  capital  provided,  it  follows  that,  accepting  the 
above  figures  as  a  guide,  the  net  profits  on  future 
municipal  investments  in  gas-works  will  rise  from 
nothing  to  one-half  per  cent,  during  the  first  thirty- 
two  years,  and  that  they  will  increase  to  over  0  per 
cent,  when  all  the  debts  have  been  paid  off.  In 
any  case,  the  above  statement  shows  clearly  that 
the  later  municipalisations  are  now  less  profitable 
than  the  works  which  have  been  managed  by  Local 
Authorities  for  many  years. 

(12)  In  calculating  the  estimated  prospective 
net  profits  we  have  taken  the  case  of  municipal  gas- 
works as  an  example ;  whereas,  in  all  enquiries  with 
reference  to  IVlunicipal  Trade,  we  should,  as  far  as 
possible,  base  our  conclusions  on  average  results. 
As  to  the  other  industries  included  in  the  Local 
Government  Board  Returns  of  remunerative  under- 
takings, many  of  them,  such  as  water- works,  markets, 
piers,  etc.,  though  they  may  be  worked  at  a  profit, 
are  not  worked  for  a  profit.  This  fact  must,  of 
course,  be  held  in  view  in  considering  the  figures, 
now  about  to  be  given,  which  have  reference  to  these 
industries  taken  as  a  whole. 

(13)  In  the  foregoing  abstract  of  results  it  was 
seen  that  the  average  annual  gross  profit  on  all  the 
remunerative  undeilakings  included  was  £4,500,013 ; 
a   sum  which  represents  a  return   of  3'8   per  cent. 


CHAP,  viii]  GROSS  PROFITS  219 

on  the  total  capital  provided,  namely  £120,031,792. 
If  this  3 '8  per  cent,  be  accepted  as  the  figure 
indicating  the  estimated  gross  profit  which  Local 
Authorities  may  hope  to  make  on  the  average  by 
their  future  municipal  enterprises ;  and  if  4*2  per 
cent,  be  taken  as  the  percentage  payable  in  order 
to  redeem  3  per  cent,  loans  in  forty-two  years, 
these  being  the  figures  indicated  by  the  Return  as 
being  probably  accurate  for  average  results ;  then 
we  arrive  at  0*4  per  cent,  as  being  the  estimated 
net  loss  which  municipalities  should  expect  to  make 
during  those  forty-two  years. 

(14)  Thus,  if  the  foregoing  figures  be  accepted 
as  guides  for  the  future,  it  appears  that  Local 
Authorities  investing  capital  in  gas-works  may  hope 
to  obtain  a  net  profit  of  about  one-half  per  cent, 
on  the  money  thus  invested  for  the  first  thirty-two 
years  after  incurring  the  expenditure,  and  that  this 
net  profit  would  rise  to  about  five  and  a  half  per 
cent,  at  the  end  of  this  period.  As  to  money 
invested  in  future  in  many  remunerative  under- 
takings similar  to  those  now  municipalised  in 
England,  Local  Authorities  on  a  similar  basis  may 
estimate  that  at  first  the  net  profits  made  by  them 
on  their  gas-works  would  be  a  little  more  than 
cancelled  by  the  net  losses  made  on  their  otlier 
undertakings,  thus  leaving  a  net  loss  of  nearly  one- 
half  per  cent,  on  the  average ;  and  that,  after  a 
period  of  forty- two  years,  they  might  hope  to 
make  nearly  four  per  cent,  on  the  average  on 
the  money  thus  invested.  These  conclusions  are, 
however,  obtained  by  considering  all  the  under- 
takings included  in  the  Local  Government  Board 
Returns   without   reference   to   the   dates    at   which 


220  MUNICirAL  STATISTICS  [chap,  mil 

the  works  were  municipalised.  It  this  element  be 
taken  into  account,  it  appears  that,  as  regards  gas- 
works, I^ocal  ^Vuthorities  ought  to  estimate  that  no 
net  profit  would  be  made  at  first,  and  that  the 
net  profit  w^ould  increase  to  about  one-half  per 
cent,  before  the  debts  are  redeemed,  after  which  it 
would  eventually  rise  to  a  maximum  of  over  six 
per  cent.  Local  Authorities  should  therefore, 
judging  by  analogy,  expect  to  suffer  a  loss  greater 
than  the  average  during  the  first  few  years  on  the 
total  of  their  investments  on  remunerative  under- 
takings ;  an  anticipation  the  probability  of  which  I 
have,  however,  been  unable  to  confirm  by  reference 
to  the  Returns. 

(15)  Thus  at  first  sight  it  appears  as  if  these 
returns  gave  us  the  information  we  are  in  search  of. 
But  is  this  so  ?  In  order  to  decide  this  point  we 
must  enquire  to  what  extent  reliance  can  be  placed 
on  these  results  as  representing  what  has  actually 
occurred  in  the  past ;  what  additions  to  or  deductions 
from  these  net  p?*o/i^5  have  to  be  made  in  order  to 
obtain  figures  representing  the  gains  of  Municipal 
Trade ;  and  to  what  extent  these  gains,  even  if 
accurately  ascertained  as  regards  the  past,  can  be 
relied  on  as  guides  for  the  future.  AV^e  shall  see 
that  each  one  of  these  questions  opens  up  new  and 
serious  elements  of  doubt. 

(16)  As  to  the  first  of  these  questions,  that 
is,  as  to  the  reliability  of  the  Local  Government 
Returns  as  representing  actual  results,  Mr  Row- 
Fogo  has  carefully  examined  the  statistical  records 
of  English  municipal  gas-works  as  indicated  by  the 
easier  return  made  in  1899,  and  he  clearly  proves 
that  the  net  profits  cannot  be  accepted  as  accurate. 


CHAP,  viii]       PROFITS   FROM   GAS-WORKS  221 

The  proof  is  best  given  in  his  own  words.      "The 

"  apphcation  of  the  balances  on  revenue  account  is 
"  as  follows : 

In  relief  of  rates £281,615 

In  reduction  of  price  of  gas  .  .  .  6,467 
Public  lighting  of  streets  ....  1,423 
Reserves  or  sinking    funds,    for  purposes 

other  than  repayment  of  loans       .         .  55,816 
Renewal  and  additions        ....         7,640 

Depreciation 11,152 

Miscellaneous  (income  tax,  repairs,  repay- 
ment of  loans,  premiums  paid  on  invest- 
ments, etc.) 2,491 

Not  yet  applied,  or  application  not  stated  .  29,716 

Carried  forward 11,126 

Writing  off  deficits  of  previous  years  .         .         6,941 


£414,432 
Losses 3,119 


Total  so-called  '  net  profit '    .        .        .£411,313 


Having  previously  pointed  out  that  this  total  in 
reality  coincides  with  the  £370,340,  the  figure 
obtained  by  Sir  Henry  Fowler,  because  the 
£411,313  includes  about  £40,000  for  depreciation 
and  other  items  which  are  not  included  in  the 
£370,340  net  profit,  he  continues  as  follows : — 
"  How  much,  now,  of  this  can  be  considered  as 
"profit?  About  the  first  three  items  there  can  be 
"  no  doubt,  they  are  nothing  else  than  '  profit 
" '  divided.'  They  represent  money  paid  out  of  the 
"  concern  to,  or  for  behoof  of  shareholders — the  rate- 
"  payers.  The  next  items  are  the  points  in  regard 
"to  which  error  lias  arisen.  Reserve  funds  set  aside 
"for  various  purposes  are  items  of  expenditure,  not 
"  profit.  They  are  an  alternative  method  for  meeting 
"heavy   charges   which   it   is   not    desirable   or    not 


222  MUNICIPAL  STATISTICS  [chap.  mii. 

"  possible  to  defray  as  they  arise.  Depreciation,  as 
"  explained,  is  tlie  only  charge  deducted  in  the 
"  official  figures.  Outlay  incurred  on  renewals  and 
"  addition  to  plant  is  also  ne\'er  considered  to  be 
"  profit,  although  it  may  be  provisionally  kept  aj)art 
"  for  the  purpose  of  considering  how  much  must  be 
"  paid  for  out  of  revenue.  Miscellaneous  outlays 
"  made  up  chiefly  of  income  tax,  repairs,  premiums 
"  paid  on  investments,  bank  interest,  and  so  forth, 
"  fjiU  under  the  same  head.  They  are  losses,  not 
"  profits."  ^  After  stating  that  the  allotment  of 
remaining  items  is  less  obvious,  he  proceeds  to 
make  a  careful  estimate  of  true  profit,  and  concludes 
that  it  should  be  reduced  to  £306,917,  with  an 
expression  of  doubt  as  to  whether  another  £13,593 
should  not  be  deducted.  For  the  details  of  this  dis- 
cussion, I  must  refer  the  reader  to  the  original  paper. 
(17)  Some  of  the  foregoing  observations  appear 
to  be  not  quite  unassailable.  On  the  one  hand, 
if,  as  we  shall  see  later,  these  statistics  are  almost 
worthless  for  the  purposes  of  this  enquiry  unless 
the  relative  prices  charged  by  public  and  private 
enterprises  are  at  the  same  time  taken  into  con- 
sideration, it  seems  to  be  hardly  legitimate  to 
include  in  profits  money  spent  in  the  reduction 
of  the  price  of  gas.  On  the  other  hand — and  this 
is  a  far  more  important  point — money  placed  in 
reserves  and  expenditure  on  additions  to  plant,  etc., 
is,  as  a  rule,  balanced  in  private  business  by  an 
increase  on  the  capital  account ;  and  when  no 
fresh  capital  is  being  raised,  these  sums  may,  in 
fact,  be  equivalent  to  money  which  is  taken  out 
of  the  gross  profits   and   invested   in   the   business, 

^  Ecojiomic  Journal,  J.  Row-Fogo,  March  1901,  \\  14. 


CHAP,  viii]       PROFITS   FROM   GAS-WORKS  223 

and  which,  therefore,  does  not  go  to  increase  the 
dividends  paid  to  shareliolders.  It  appears  to  me  that 
it  would  be  desirable  to  follow  the  same  plan  in 
municipal  accounts ;  that  is  to  say,  to  class  these 
sums  as  profits,  and  to  make  annually  a  corre- 
sponding addition  to  the  "total  capital  provided." 
As,  however,  it  would  appear  that  this  latter  adjust- 
ment has  not  been  made  in  past  years,  and  as  this 
expenditure  might  perhaps  be  more  properly  in- 
cluded under  depreciation  and  current  expenditure, 
there  is  not  much  to  be  said  against  My  Row- 
Fogo's  method  of  dealing  with  this  question.  Thus, 
on  the  whole,  it  seems  fair  provisionally  to  adopt 
£307,000  as  being  the  average  annual  net  profits 
made  by  Enghsh  municipal  gas-works  between  1893 
and  1898  on  the  ground  that  this  figure  represents 
the  best  attempt  yet  made  to  extract  the  truth 
from  the  official  figures ;  and  if  this  figure  be 
accepted  as  accurate,  both  the  gross  profits  and 
the  net  profits  on  gas-works  during  those  years  must 
be  reduced  by  about  0  3  per  cent. 

(18)  Unfortunately,  no  similar  examination  has 
been  made  of  the  statistics  of  all  the  remunerative 
undertakings.  But  the  same  author  tells  us  that 
an  examination  of  numerous  borough  accounts 
led  to  the  detection  of  "a  considerable  number 
"  of  errors  both  in  principle  and  detail,"  ^  the  most 
important  being  with  reference  to  entries  regarding 
stocks  in  hand.  But,  even  if  it  be  admitted  that 
mistakes  such  as  these  detract  "  very  seriously 
"  from  the  value  of  the  official  statistics,"  yet  it  may, 
nevertheless,  be  true  that  they  do  not  materially 
affect  the  average  results  obtained :  and  certainly  we 

^  Economic  JournaU  March  1901,  p.  19, 


224  MUNICIPAL  STATISTICS  [chap.  viii. 

have  no  means  of  knowing  in  which  way  they  tell. 
But  as  to  many  other  reasons  for  doubting  the  relia- 
bility of  the  average  results  obtained  from  municipal 
statistics,  though  it  may  be  true  that  we  cannot 
estimate  the  importance  of  the  errors  involved, 
yet  we  may  be  able  to  say  in  which  way  they 
will  probably  affect  the  results.  Take,  for  instance, 
the  effect  of  free  accommodation  being  given  for 
municipal  trading  offices  in  town  halls  or  in  other 
public  buildings.  Such  accommodation  is  not 
given  for  the  offices  of  private  gas  and  water 
companies ;  and,  consequently,  when  accommoda- 
tion is  given  for  municipal  trading  offices  in 
public  buildings,  some  portion  of  the  expenditure 
on  their  erection  and  maintenance  is  necessary  only 
because  of  these  municipal  enterprises.  As  a 
matter  of  account,  therefore,  a  rent  should  always 
be  included  in  the  cost  of  all  municipal  industries 
when  they  receive  any  such  advantages.  But  has 
this  been  done  ?  It  has  been  stated  that,  had 
the  cost  of  book-keeping,  rentals  and  other 
items  been  properly  included,  the  accounts  of 
the  Philadelphia  Gas- Works  would  have  shown 
a  loss  and  not  a  profit.^  Though  the  errors  in 
English  municipal  accounts  are  probably  never  as 
serious  as  is  suggested  in  this  instance,  yet  such 
rents  are  not  usually  charged ;  and,  as  long  as 
this  is  the  case,  English  municipal  accounts 
will  not  show  the  true  cost  to  municipalities  of 
the  trading  enterprises  undertaken  by  them. 
The  exact  sum  to  be  charged  would,  no  doubt, 
be  difficult  to  estimate ;  but  this  should  not  prevent 

J    "The  Lease  of  tlie  Philadelphia   Gas- Works,"  W.  D.  Lewis,  Quart. 
Jo%r7ial  of  Economics,  January  1898. 


CHAP.  VIII.]       OMISSIONS   FROM   EXPENDITURE         225 

a  reasonable  charge  being  made  and  entered. 
Then  again  it  has  been  suggested  tliat  salaries  are 
charged  under  various  other  headings  in  municipal 
accounts,  and  are  not  properly  debited  to  the 
trading  enterprises  which  necessitate  the  ex- 
penditure. It  is,  for  example,  reasonable  that 
some  portion  of  the  salaries  of  the  town  clerk, 
the  borough  surveyor,  and  other  officials  should 
be  charged  against  the  municipal  gas-  and  water- 
works, especially  as  the  increase  of  business  arising 
from  the  municipalisation  of  these  industries  is 
not  infrequently  given  as  a  reason  for  increasing 
the  pay  of  these  officials ;  and  such  charges  are,  I 
believe,  seldom  or  never  included  in  English  muni- 
cipal accounts.^  It  has  been  stated  that  the  French 
Postal  Budget  is  wholly  delusive  because  neither 
interest  on  capital,  nor  railway  charges,  nor  pensions, 
are  fully  charged ;  ^  and  it  would  be  far  more  satis- 
factory, to  say  the  least,  if  steps  were  taken  to  ensure 
that  all  expenditure  on  salaries  and  pensions  was 
correctly  entered  in  the  case  of  English  municipal 
enterprises.  We  are  told  by  one  witness  before 
the  Joint  Committee  on  Municipal  Trading  that  he 
found  great  difficulty  in  ''  determining  whether 
"the  coal,  for  instance,  which  the  Corporation  has 
"  bought  has  been  properly  charged  to  their 
"  electric  lighting  undertaking  and  to  their  dust 
"destructor."^  Obviously  all  material  used,  together 
with  a  share  of  the  municipal  stationery,  should 
be  charged  to  each  enterprise  to  show  the  true 
cost.     On    similar    grounds,    it     is    wrong     for    a 

1  M.T.R.,  Qs.  870,  1140,  1580,  1681;    "Traction  and  Transmission," 
January  1902,  p.  21  ;  and  Economic  Journal,  March  1901,  p.  17. 

2  "  L'Etat  Moderne,"  Leroy-Beaulieu,  1860,  p.  163. 

3  M.T.R.,  Q.  1141,  Mr  Emile  Garcke. 

P 


226  MT^lCirAL  STATISTICS  [cnxr.  vm, 

nuinicipality  to  chiir«re  to  the  general  munieipal 
account  more  of  the  cost  of  the  widening  of  streets 
to  enable  a  municipal  tramway  to  be  constructed 
than  would  have  been  charged  had  the  tramway 
been  made  by  a  private  company  ;  a  method  of 
hiding  the  true  relative  cost  of  public  and  private 
enterprise  which,  it  is  stated,  one  city,  at  all  events, 
has  attempted  to  adopt,  though  probably  not 
with  that  object.^  Lastly,  municipal  enterprises 
must  be  treated  exactly  as  private  companies  in 
all  matters  of  taxation,  local  or  general.  It  has 
been  suggested  that  municipal  property  is  rated 
more  leniently  than  private  property  ;  and,  if  this 
is  the  case,  a  loss  will  arise  from  the  municipalisa- 
tion  of  any  enterprise  which  will  not  show  itself 
in  the  trading  accounts."  It  is  true  that  the 
assessment  is  made  by  a  local  body  distinct  from 
that  in  charge  of  the  municipal  enterprise.^  This 
is  not,  however,  a  very  efficient  safeguard  against 
such  errors ;  for  there  is  little  sense  of  injustice 
in  rating  a  public  building  too  low.  The  foregoing 
are  examples  of  errors  which,  it  has  been  asserted, 
have  been  made  in  the  keeping  of  municipal 
accounts,  every  one  of  which  would  make  muni- 
cipal production  appear  to  cost  less  than  it  really 
does.  It  may,  perhaps,  not  unreasonably  be  urged 
that  the  correction  of  these  errors  would  not  greatly 
alter  the  percentage  of  gi'oss  profits.  We  are  here, 
however,  dealing  with  narrow  margins ;  and  with- 
out doubt  these  circumstances  must  make  us  view 
the  foregoing  conclusions  with  some  suspicion,  a 
suspicion  which  must  be  allowed  to  carry  a  certain 

1  M.T.R.,  Q.  870.  2  /jiV?.,  Q.  3419. 

''  Ibid,  Q.  3158. 


CHAP,  viir]  DEPRECIATION  227 

weight  when   these  statistical  results   are   quoted  in 
the  controversy  on  Municipal  Trade. 

(19)  Another  question  which  has  been  raised 
with  regard  to  municipal  accounts  is  in  connec- 
tion with  depreciation.  Perhaps  this  subject  can 
best  be  illustrated  by  first  considering  an  extreme 
and,  of  course,  impossible  theoretical  example. 
Take  the  case  of  a  hypothetical  industrial  concern, 
the  whole  capital  of  which  is  invested  in  plant 
and  machinery ;  and  the  plant  and  machinery  of 
which  is,  moreover,  not  being  kept  up  to  date  by 
expenditure  on  maintenance,  and  is,  therefore,  depre- 
ciating steadily  in  value,  so  that  at  the  end  of,  say, 
thirty  years,  it  will  become  valueless.  In  these 
circumstances,  if  an  annual  depreciation  is  properly 
entered  in  the  accounts,  a  fund  will  be  created 
which,  at  the  end  of  the  thirty  years  will  be  equal 
to  the  total  original  capital,  and  with  wliich,  there- 
fore, new  plant  could  be  bought,  and  the  business 
started  anew  without  any  more  funds  being  raised. 
This  is  what,  as  a  rule,  would,  and  what  certainly 
should  always  be  done  in  private  trade.  But  witli 
pubhc  enterprises,  when  the  debts  created  are  paid 
off  in  a  certain  number  of  years,  the  case  is 
different.  Take  the  case  of  a  somewhat  similar 
hypothetical  municipal  enterprise,  in  the  accounts  of 
which  no  ajinual  charge  is  made  for  depreciation, 
the  debts,  however,  being  completely  redeemed  at 
the  end  of  the  thirty  years.  ^Vt  the  end  of  that 
period  there  would  be  no  liabihties  and  no  assets. 
There  would,  it  is  true,  be  no  funds  wherewith  to 
recommence  business ;  but  the  citizens  of  that  time 
could  raise  no  complaint  on  that  ground ;  for  they 
would   have   subscribed   nothing   and    lost   nothing. 


328  MUNICIPAL  STATISTICS  [chap.  viii. 

Tliis  liypotlietical  iiuliistry,  no  doubt,  represents  a 
grotcs(iue  exaggeration  of  Avliat  might  oeeur ;  for 
land  never  "  wears  out,"  and  plant  and  machinery 
can  often  be  kept  quite  up  to  its  initial  value  by 
renewals  and  expenditure  on  maintenance.  But 
these  illustrations  do  make  it  clear  that  there  is 
some  justification  for  charging  depreciation  on  a 
different  scale  in  municipal  trades,  where  the  whole 
of  the  capital  expenditure  is  being  wiped  out  by 
sinking  funds,  to  what  ought  to  be  charged  in 
private  trades,  where  no  such  provision  is  being 
made  for  the  future. 

(20)  But,  whatever  be  right  or  ^vrong,  if,  in 
the  English  municipal  trades  included  in  the  Local 
Government  Board  Returns,  depreciation  has  not, 
as  a  fact,  been  charged  on  the  full  scale  which 
ought  to  be  adopted  in  private  trade,  it  will  be 
seen  that  the  foregoing  conclusions  cannot  be 
accepted  as  being  accurate  for  our  purposes.  A\'^e 
have  seen  that  the  gross  profit  on  these  municipal 
remunerative  undertakings  amounts  to  3*8  per  cent, 
on  the  total  capital  provided ;  and  it  has  been 
assumed  that  this  3*8  per  cent,  will  be  all  avail- 
able as  net  profit  when  the  municipal  debts  have 
all  been  redeemed.  But  if  the  depreciation  charged 
has  not  been  adequate  to  create  a  fund  to  cover 
all  future  expenditure  on  renewals,  it  is  obvious 
that  more  money  will  have  to  be  raised  at  some 
future  time,  and  that  the  future  net  profits  will 
be  less  than  this  3*8  per  cent,  gross  profits  by  the 
amount  which  will  have  to  be  charged  for  interest 
and  sinking  funds  for  this  new  capital.  This  is 
obviously  an  important  point,  if  it  be  true,  as  has 
often   been  asserted,  that   the   depreciation  charged 


CHAP,  viri]       DEBT  REDEMPTION   PERIOD  229 

in  municipal  trades  is  on  a  very  low  scale.  In- 
dependent enquiry  is  much  needed  on  this  point, 
and  at  present  it  can  only  be  said  that  the  amount 
included  in  the  above-mentioned  returns  appears  to 
be  very  small.  Some  deduction  probably  ouglit  to 
be  made  from  the  3  "8  per  cent,  gross  profits  ;  but  what 
that  deduction  should  be  it  is  impossible  to  say.^ 

(21)  It  was  assumed  in  the  case  of  the  above- 
mentioned  hypothetical  industry  under  municipal 
management,  that  the  plant  wore  out  at  the  same 
date  at  which  the  debts  were  wholly  redeemed ; 
and  it  was  seen  that,  in  these  circumstances,  the 
citizens  of  the  future  would  have  no  cause  of 
complaint,  even  if  no  depreciation  were  charged. 
But  if  the  period  for  the  redemption  of  debts  be 
longer  than  the  average  life  of  the  plant  purchased 
with  the  money  thus  raised,  and  if  depreciation  be 
not  properly  charged,  then  a  more  or  less  consider- 
able amount  of  capital  must  be  raised  before  the 
old  debts  are  all  redeemed.  This  consideration 
appears  always  to  be  held  in  view  by  the  Govern- 
ment Departments  when  dealing  with  local  loans. 
For  example,  when  Local  Authorities  construct 
tramways  with  the  view  of  leasing  them  out  to 
be  worked  by  private  companies,  then  tlie  loan  is 
allowed  to  run  for  a  longer  period  than  would  be 
permitted  if  the  municipality  had  intended  to 
work  the  business  itself;  the  reason  being  that 
the  working  of  tramways  necessitates  the  purchase 
of  tramcars  and  other  short-lived  assets,  a  purchase 
which  would  be  unnecessary  if  the  tramways  were 

•  M.T.R.,  Qs.  UoT  and  1679;  Economic  Journal,  March  1901,  p.  17; 
"  Traction  and  Transmission,"  March  1902,  p.  159  ;  Tinier,  28th 
August  and  30th  September  1902. 


2f50  MUNICIPAL  STATISTICS  [chap.  viii. 

to  be  leased  to  private  companies.  This  is  as 
it  should  be ;  but,  unfortunately,  an  element  of 
doubt  must  thus  be  introduced  into  all  comparisons 
between  tlie  two  systems ;  ^  for  it  is  impossible  to 
tell  whether  the  relative  lengths  of  the  loans 
corresponds  truly  to  the  relative  length  of  life  of 
the  plants  in  the  two  cases.  iVgain,  if  a  proper 
capital  account  be  kept,  the  capital  being  regularly 
diminished  by  depreciation,  and  also  increased 
when  plant  is  renewed,  the  profits  will  be  correctly 
and  uniformly  shown  by  the  accounts.  But  if  this 
is  not  done  in  the  earlier  years,  when  the  plant  is 
new  and  requires  little  expenditure  on  maintenance 
and  renewals,  the  net  profits  shown  will  be  large. 
The  majority  of  our  municipal  trades  being  still 
in  their  infancy,  if  judged  by  the  date  at  which 
the  bulk  of  the  expenditure  on  them  was  in- 
curred, we  here  have  another  reason  connected 
witli  depreciation,  though  perhaps  not  a  very  im- 
portant one,  for  suspecting  that  statistics  paint  the 
prospects  of  those  about  to  enter  the  field  of 
Municipal  Trade  somewhat  too  brightly. 

(22)  Thus  doubts  have  been  thrown  on  the 
accuracy  of  the  records  of  the  expenditure  on 
municipal  trades,  and  therefore  on  the  net  profits 
deduced  from  tliem.  But  if  these  net  profits  are 
to  be  quoted  as  percentages  of  the  capital  employed 
we  nmst  also  enquire  wliether  that  capital  has  been 
correctly  recorded.  In  tiie  first  place,  the  capital 
statement  in  the  foregoing  table  dealing  with  all 
the  remunerative  undertakings  shows  the  position 
on  31st  JNIarch  1902,  whilst  the  income  is  for  the 
average    of   the    four    years    ended    on    that    date. 

'  "Tractiou  and  Transmission,"  Jauuary  1902,  p.  21. 


CHAP,  viii]  CAPITAL  EXPENDITURE  231 

During  those  four  years  debts  were  being  paid  off, 
and  new  loans  negotiated  ;  and  what  we  ought  to 
have  is  a  capital  statement  for  the  middle  of  that 
period.  Hence  the  foregoing  results  tell  in  this 
respect  unduly  against  iMimicipal  Trade.  xVs  far  as 
the  imperfect  information  at  my  command  enables 
me  to  judge,  I  estimate  that  the  gross  profits  on 
gas-works  should  be  mcreased  from  5*4  per  cent, 
to  5 "8  per  cent.,  the  estimated  period  for  the 
redemption  of  debts  remaining  about  the  same ; 
and,  as  to  the  total  of  the  remunerative  under- 
takings, the  gross  profit  should  be  increased  from 
3*8  per  cent,  to  somewhat  over  4  per  cent.,  and  the 
estimated  period  for  the  redemption  of  loans  reduced 
from  forty-two  to  forty  years.  The  net  profits  are 
but  little  affected  by  this  error.  These  corrections 
are,  however,  but  little  trustworthy. 

(23)  It  is,  nevertheless,  probable  that  for  other 
reasons  the  capital  is  likely  to  be  understated  rather 
than  overstated.  From  the  original  Local  Govern- 
ment Board  lleturns  it  will  be  seen  that  the  "  Total 
"Capital  provided  "  is,  in  the  case  of  gas-works,  greater 
than  the  "  Amount  of  Capital  borrowed "  by  the 
sum  of  £1,270,094;  a  difference  which  is  accounted 
for  in  ways  mentioned  in  the  notes  to  the  Re- 
turn, as  well  as  possibly  by  capital  being  raised 
by  taxation  or  taken  out  of  profits ;  and  certainly, 
for  the  purposes  of  our  calcidations,  all  such  sums 
should  be  included  in  the  total  capital.  To  illus- 
trate this  point,  let  us  take  an  extreme  case,  and 
assume  that  the  whole  of  the  capital  expenditure 
in  purchasing  certain  gas-works  was  obtained  from 
the  municipal  revenues  and  none  by  loan.  In 
these  circumstances  citizens  would  be  heaxily  taxed 


232  MUNICIPAL  STATISTICS  [chap.  vm. 

for   the   benefit    of  posterity.     But  the   net   profits 
made   on   gas-works    thus    purchased,   if    calculated 
as   a  percentage    on    tlie   money   actually   thus   in- 
vested,   however    it    might    have    been     obtained, 
would    serve   as   a    correct    guide    to    other    I^ocal 
Authorities  in  the  future,  whether  these  other  Local 
Authorities  intended  to  raise   funds  for  their  enter- 
prises   by    loan    or    not.     In    fact,    in    seeking    for 
guidance    for    the    future    with    regard    to    capital 
investments,  we  want  to  know,  not  the  capital  value 
of    the    existing     municipal     enterprises,     nor     the 
amount   borrowed   by  municipalities,  but  the  actual 
amount   of  capital   expenditure.     Annual  losses  in- 
curred   should    not   be    covered    by   writing    down 
the   total    capital    provided,   as   is    sometimes   done 
in   private  trade ;    neither   should    money  raised   by 
taxation    to    cover    such    losses    be    added    to   the 
total  sum  provided.     But  when  capital  expenditure 
is  covered  either  by  taxation,   or   by   providing  the 
necessary  funds   out   of  the   profits   made,  then  the 
total  capital  provided  should  be  increased  by  a  like 
amount.     To  obtain  accurate  results  as  far   as   our 
calculations  are  concerned,  the  foregoing  rules  with 
regard   to   capital   expenditure   should   be   followed. 
Unfortunately,  we  have  reason  to  believe  that  this 
has   not    been    done,    and   that   an    error,   great   or 
small,    has    thus    been    introduced.     As   to    money 
raised  by  taxation,  it  has  been  asserted,  for  example, 
that  initial  charges  in  the   case  of  electric   lighting, 
presumably     chargeable     to     capital     account,     are 
sometimes   "paid   out  of  the   rates  in   the  years   in 
"  which  they  accrue,"  and  then  disappear  out  of  the 
accounts.^     ^Vs  to  capital  expenditure  out  of  profits, 

'  M.T.R.,  Q.  1677,  Mv  W.  L.  Madgeu. 


cH^p.  viii]  CAPITAL   EXPENDITURE  233 

there  is  no  evidence  to  guide  us.  But,  judging  by 
the  daily  delivery  of  gas,  we  find  that  the  "  capital 
"  employed "  in  the  JNIanchester  Corporation  gas- 
works would  have  to  be  increased  by  between 
£300,000  and  £600,000  to  bring  it  up  to  the  level  of 
the  "  capital  employed  "  by  the  JNIetropolitan  private 
gas  companies.^  Noav  this  difference  may  be  due 
either — (1)  to  the  private  works  having  been  more 
expensively  constructed,  or  (2)  to  the  capital 
employed  in  the  private  works  including  a  premium 
on  the  sums  originally  invested,  or  (3)  to  money 
having  been  provided  out  of  profits  for  capital 
expenditure  on  the  municipal  works,  and  no 
corresponding  increase  having  been  made  in  the 
total  capital  provided ;  and  to  whatever  extent 
this  third  explanation  is  the  correct  one,  to  that 
extent  the  total  capital  provided  as  assumed  in 
the  foregoing  calculations  is  erroneous.  JNIan- 
chester, by  municipalising  the  gas  industry  more 
than  sixty  years  ago,  took  a  considerable  risk,  and 
was  able  consequently  to  make  considerable  profits  ; 
and  in  these  circumstances  the  provision  of  capital 
expenditure  out  of  profits,  if  it  was  done,  was  an 
eminently  wise  and  prudent  act.  There  is,  perhaps, 
no  reason  why  this  capital  expenditure  should  have 
been  shown  by  the  Corporation  for  their  own 
purposes  in  their  accounts,  and  there  is,  therefore, 
now  nothing  to  show  that  JNIanchester  did  not  in 
the  past  thus  invest  several  hundreds  of  thousands 
of  pounds  in  her  gas-works,  sums  which  do  not 
now  appear  in  the  total  capital  provided.  The 
JNIanchester  gas-works  must  not  be  quoted  by  the 
advocates  of  JNIunicipal  Trade  without  making  full 

1  "  Gas  Aualysis,"  Field,  1900,  ]..  IG. 


234  MTTNICIPAL  STATISTICS  [chap.  mii. 

allowance  lor  this  possibility,  nor  without  acknow- 
ledging the  impossibility  of  Local  Autliorities  buy- 
ing gas-works  in  future  ever  again  putting  aside 
such  large  sums  out  of  profits.  If  Mancliester  is 
still  providing  capital  expenditure  out  of  profits,  that 
is  an  item  to  be  noted  on  tlie  otlier  side  ;  for  then 
the  net  profits  made  should  for  our  purposes  be 
correspondingly  increased.  As  there  are  few  muni- 
cipal enterprises  comparable  to  the  Manchester  gas- 
works, this  error  in  the  "  Total  Capital  provided  "  is 
not  likely  to  affect  average  results  very  seriously. 
But  it  will  affect  them  somewhat ;  and  to  whatever 
extent  the  capital  ouglit  to  have  been  increased  by 
the  inclusion  of  capital  expenditure  provided  for  out 
of  taxation  or  out  of  profits,  to  a  corresponding 
extent  will  the  estimated  net  profits  as  calculated 
as  a  percentage  of  the  total  capital  provided  give 
a  too  favourable  guide  for  the  prospects  of  muni- 
cipal enterprise  in  future. 

(24)  But  even  if  we  could  ehminate  all  errors 
with  regard  to  current  and  capital  expenditure,  we 
should  still  have  to  enquire  what  additions  to  or 
deductions  from  the  accurately  stated  net  profits 
should  be  made  to  ascertain  what  municipalities 
have  gained  by  their  trading  enterprises ;  or,  in 
other  words,  to  find  out  liow  much  taxation  lias 
been  increased  or  reduced  thereby.  As  to  possible 
additions  to  the  net  profits,  it  has  already  been 
mentioned  that  if  the  charges  connected  with  the 
inspection  of  gas,  for  example,  are  included  in  the 
cost  of  the  municipal  gas-works,  an  addition  must 
be  made  to  the  net  profit  to  ascertain  the  gain ; 
for  such  charges  would  have  to  })e  provided  for 
out   of  the   pubhc   revenues    if  the   works   were  in 


CHAP,  viii]    THE   GAINS   OF  MUNICIPAL  TRADE     235 

private  hands.  Both  from  the  point  of  view  of  the 
efficiency  of  the  inspection  and  on  financial  grounds, 
the  inspecting  departments  should  in  every  way  be 
kept  as  distinct  as  possible  from  the  manufacturing 
departments  ;  and  the  cost  of  the  inspecting  depart- 
ment should  be  debited  to  the  ordinary  borough 
funds.  But  there  is  no  means  of  ascertaining  to 
what  extent  this  principle  has  been  adhered  to, 
or,  consequently,  of  estimating  the  additions  which 
should  be  made  to  the  net  profits  on  this  account. 
This  must  merely  be  noted  as  an  unknown,  though 
probably  not  a  very  material  correction  to  be  made 
to  the  net  profits  in  ascertaining  the  gains. 

(25)  As  to  the  deductions  which  should  be 
made  from  the  net  profits  in  ascertaining  the  gains, 
it  lias  already  been  remarked  that  the  foregoing 
results  may  require  corrections  because  of  items 
connected  with  taxation,  rents  of  public  buildings, 
widenings  of  streets,  etc.,  not  being  properly  entered 
under  the  expenditure.  But,  in  addition  to  all 
such  corrections,  the  rents  which  might  have  been 
drawn  from  pri^'ate  companies  had  the  existing 
municipal  remunerative  undertakings  been  left  in 
their  hands,  though  they  should  not  be  included  in 
the  municipal  accounts,  should,  nevertheless,  be 
deducted  from  the  net  profits  to  ascertain  what 
municipalities  are  really  gaining  by  the  under- 
takings managed  by  them.  Taking  the  case  of 
tramways,  it  will  be  seen  i'rom  the  Local  Govern- 
ment Board  Returns  under  consideration  that  the 
net  profits  of  tlie  tramways  owned  and  managed 
by  English  municipalities  were  £81,901  a  year  on 
an  average,  the  gross  profits  amounting  to  £37*3,981. 
There  can  be  no   doubt   that,    had    these   tramways 


236  MUNICIPAL  STATISTICS  [chap.  viii. 

been  leased  out  for  working,  the  companies 
managing  them  would  have  paid  rents  to  the 
municipalities  concerned ;  and  what  we  have  to  do 
is  to  endeavour  to  ascertain  what  these  rents  would 
have  amounted  to.  In  the  original  Local  Govern- 
ment Board  lleturns,  it  will  be  seen  that  the  tram- 
ways owned,  but  not  worked  by  Corporations,  return 
to  the  Corporations  working  them  a  net  profit  of 
1*5  per  cent,  on  the  total  capital  provided  by  the 
Corporations.  But  the  capital  provided  by  Corpora- 
tions is,  so  I  am  informed,  some  20  per  cent, 
less  in  the  case  of  lines  leased  out  by  Corporations 
than  it  would  be  if  those  same  lines  were  actually  in 
their  management.  JNIaking  allowance  for  this  fact, 
it  would  appear  that  the  tramways  now  worked  by 
municipalities  with  a  capital  of  £8,610,573  would  have 
brought  in  over  £105,000  a  year  if  they  had  been 
leased  out  to  private  companies.  Again  in  the  recent 
negotiations  with  reference  to  the  renewals  of  the 
lease  of  the  Birmingham  tramways,  the  rental  pro- 
posed by  the  company  was  one  rising  to  15  per  cent, 
on  the  gross  receipts ;  and,  if  this  figure  could  be 
accepted  as  a  basis  for  average  calculations,  English 
municipal  tramways  would  have  brought  in  over 
£200,000  a  year  to  the  Local  Authorities  if 
they  had  been  leased  out  to  private  companies.^ 
English  municipalities  are  now  making  a  net  profit 
of  about  £80,000  a  year  out  of  the  tramways  they 
manage,  a  profit  which  will  eventually  increase  to 
about  £375,000  a  year ;  these  tramways  might  be 
leased  out  to  private  companies  for  between  £100,000 
and  £200,000  a  year ;  and  it  is,  therefore,  fair  to  state 
that   English  municipalities  are  now  losing  between 

^  See  also  "  Traction  and  Transmission,"  October  1901,  p.  99. 


CHAP,  viii]     RENTS   FROM   PRIVATE   COMPANIES    237 

£20,000  and  £120,000  on  their  tramways,  a  loss  which 
will  be  gradually  converted  into  a  gain  of  between 
£75,000  and  £175,000  a  year.  The  foregoing  figures, 
moreover,  probably  give  a  somewhat  unfair  impres- 
sion ;  because  no  notice  has  been  taken  of  the  fact 
that,  besides  the  rents,  the  leasing  companies  have 
in  many  cases  to  cover  the  cost  of  the  sinking  funds 
on  the  Local  Authorities'  loans.  As  regards  other 
reproductive  undertakings,  we  find  that  in  New 
York  the  various  ferry  companies  have  been  paying 
about  £70,000  a  year  to  the  city,  whilst  the  leased 
wharf  property  brings  in  a  very  large  sum ;  ^  and 
such  figures  make  one  suspect  that  very  consider- 
able deductions  should  be  made,  for  example,  from 
the  gross  profit  of  about  £20,000  a  year  made  by 
the  Birkenhead  municipal  ferries  before  that  figure 
could  be  utilised  in  estimating  the  gains  made  by 
that  city  from  its  municipal  undertakings.  As  to 
gas-works,  we  find  that  for  several  years  the  annual 
payment  of  the  companies  managing  these  under- 
takings to  the  city  of  Paris  amounted  to  about 
£800,000  a  year.'  In  the  face  of  these  facts,  it  is 
clear  that  English  Local  Authorities  could  have 
leased  out  their  tramways,  ferries,  markets,  gas- 
works, etc.,  to  private  companies,  and  that  the  rents 
they  would  then  have  received  ought  to  be  deducted 
from  the  net  profits  in  estimating  the  gains. 

(26)  The  rents  obtainable  from  private  companies 
obviously  depend  on  the  prices  and  fares  they  are 
allowed  to  charge ;  a  question  to  be  considered  in 
the  next  chapter.  The  following  figures  may,  how- 
ever, help  to  illustrate  the  importance  of  the  question. 

^  "  Municipal  Administration,"  Fairlie,  pp.  301  and  30G. 

2  "  Municipal  Govermuent  in  Continental  Europe,"  Albert  Sliaw,  p.  48, 


f 


238  MUNICIPAL  STATISTICS  [chap.  vm. 

Eight  per  cent,  on  the  gross  receipts  of  English 
remunerative  undertakings  amounts  to  little  more 
than  0*8  per  cent,  on  the  total  capital  provided. 
Assuming  for  the  purposes  of  illustration  that,  if 
all  the  existing  remunerative  undertakings  were 
leased  out  to  private  companies  for  management, 
a  rental  of  8  per  cent,  on  the  gross  receipts  would, 
on  the  average,  be  obtained — not  an  extravagant 
assumption,  if  we  may  judge  by  the  15  per  cent, 
rent  offered  at  Birmingham — it  would  follow  that 
English  municipalities  could  on  an  average  get  0*8 
per  cent,  on  the  total  capital  provided  by  leasing 
out  their  remunerative  undertakings  to  private 
companies.  According  to  the  Returns,  it  would 
appear  that  our  municipalities  are  actually  making 
a  net  profit  of  3*8  per  cent,  by  managing  these  works 
themselves  ;  that  is  to  say,  on  this  assumption  they 
are,  by  managing  these  works  themselves,  making 
3  per  cent,  more  than  they  would  make  if  they 
leased  them  out  to  private  companies.  But  this 
3  per  cent,  is  only  just  sufficient  to  cover  the 
interest  on  the  debts,  and  it  leaves  no  margin 
whatever  for  the  repayments  of  capital.  In  other 
wor<^s,  if  all  the  existing  remunerative  undertakings 
could  be  leased  out  on  such  terms  that  an  average 
rental  of  8  per  cent,  on  the  gross  receipts  could  be 
obtained,  it  would  follow  that  English  communities 
are  gaining  nothing  whatever  by  their  remunerative 
undertakings,  and  that  the  repayments  of  principal 
are  all  being  paid  out  of  taxation  which  would  not 
have  been  raised  but  for  these  remunerative  under- 
takings. It  is  impossible  to  say  whether  8  per  cent, 
is  too  high  or  too  low  an  estimate  of  the  average 
of  the   rents  which   might  thus  be  obtained ;    and. 


CHAP,  viir]     RENTS   FROM   PRIVATE   COMPANIES    239 

even  if  there  were  no  other  elements  of  doubt,  we 
should  have  to  confess  our  inability  to  say  whether 
the  financial  effects  of  IMunicipal  Trade  are  harmful 
or  beneficial. 

(27)  In  reply  to  the  foregoing  argument  it  may 
be  said  that  INIanchester,  for  example,  is  now  making 
over  £60,000  a  year  in  net  profits  fi-om  the  city  gas- 
works, whereas,  if  these  same  gas-works  had  been 
established  by  a  private  company  in  the  ordinary 
manner,  Manchester  would  now  be  receiving  nothing 
whatever  from  them.  Consequently,  it  may  be  urged, 
this  sum  of  over  £60,000  is  all  pure  gain,  and 
no  deduction  should  be  made  from  it.  This  is  true 
if  the  comparison  to  be  made  is  that  between  muni- 
cipal trade  and  private  trade  under  a  system  of 
perpetual  concessions,  such  as  those  gi*anted  to  com- 
panies managing  gas-works,  water-works,  etc.  But 
if  perpetual  concessions  for  such  undertakings  stand 
condemned,  and  if  terminable  concessions  ought  to 
be  adopted  instead,  then  the  comparison  which 
should  be  instituted  for  the  purposes  of  this  discus- 
sion is  that  between  JNIunicipal  Trade  and  private 
trade  under  a  system  of  terminable  concessions.  It 
is  therefore  legitimate  for  our  purposes  to  compare 
the  existing  financial  condition  of  Manchester  with 
the  financial  condition  which  would  now  exist  had 
IVIanchester  originally  handed  over  the  management 
of  her  gas-works  to  a  private  company  working 
under  a  terminable  concession.  If  this  course  of 
action  had  been  pursued,  it  is  very  probable  that  at 
first  no  rent  would  have  been  obtained  from  the 
private  company.  But  the  concession  would  have 
contained  provisions  enabhng  the  city  to  have  made 
fresh  arrangements  with  the  company  from  time  to 


240  MUNICIPAL  STATISTICS  [chap.  viii. 

time ;  and  as  to  all  the  circumstances  which  have 
actually  made  the  business  more  and  more  profitable 
to  tlie  Local  ^Vutliorities  managing  it,  these  same 
circumstances  would  also  have  made  it  possible  for 
the  private  company  to  pay  an  increasing  rent  to 
the  Local  Authorities  for  the  privileges  conferred  on 
it.  In  fact  the  rents  obtainable  from  hyj^othetical 
companies  working  under  terminable  concessions  will 
generally  increase  pari  passu  with  municipal  profits. 
Manchester  would  now  probably  be  drawing  a  large 
rent  from  a  private  company  had  private  trade 
under  the  system  here  advocated  been  adopted ; 
and  that  rent  should  be  deducted  from  the  muni- 
cipal profits  if  the  example  of  Manchester  is  to 
be  taken  as  a  guide  for  the  future  in  comparing 
ISIunicipal  Trade  with  private  trade  under  terminable 
concessions. 

(28)  Thus  far  we  have  seen  that 'the  net  profits 
on  the  total  capital  provided  as  deduced  from  these 
returns  are  in  all  probability  somewhat  too  large, 
and  that  considerable  deductions  would  have  to  ^ 
be  made  from  these  net  profits  even  if  they  were  I 
accurately  ascertained  in  order  to  estimate  what  ■ 
English  municipalities  have  on  the  average  gained 
by  their  remunerative  undertakings.  But,  in  addi- 
tion to  these  elements  of  doubt,  we  have  now  to 
enquire  how  far  the  gains  actually  made  by  muni- 
cipalities in  the  past,  if  known,  could  be  accepted 
as  guides  for  the  future.  There  are  many  reasons 
for  not  relying  on  the  statistics  of  municipal 
trades  for  purposes  of  forecasting,  possibly  the 
most  important  being  that  our  experience  has,  in 
reality,  been  but  short  and  scanty.  AVe  have 
seen   that  the   profits   and   losses   made   by  trading 


CHAP,  vni.]  RATE   OF   INTEREST  241 

with  borrowed  money  are  largely  due  to  the  result 
of  circumstances  which  could  not  be  foreseen,  or, 
in  popular  language,  to  good  or  bad  luck ;  and, 
to  obtain  correct  average  results  by  eliminating 
this  factor,  we  ought  to  have  the  records  of  the 
municipalisation  of  many  different  trades.  This 
we  have  not  got,  and  all  forecasts  based  on  past 
experience  are  therefore  very  unreliable. 

(29)  Any  considerable  increase  in  the  debt  of 
any  municipality  will  undoubtedly  tend  to  increase 
the  rate  of  interest  payable  on  new  loans ;  and  in 
this  fact  we  find  another  reason  for  distrusting  the 
results  of  statistical  enquiries.  It  is  probable,  in 
my  opinion,  that,  at  all  events  until  quite  recently, 
the  security  offered  in  England  by  municipalities 
has  been  considered  so  ample  that  the  rate  of 
interest  on  all  loans  has  been  as  low  as  it  would 
have  been  had  no  municipal  trades  existed.  But 
if  the  policy  of  municipahsation  were  ever  adopted 
in  London,  for  example,  even  to  the  extent 
advocated  by  some  serious  politicians,  it  would, 
to  quote  the  words  of  I^ord  Avebury,  make  the 
rate  of  interest  "  appreciably  higher  than  it  is  at 
"  present " ;  ^  and  to  whatever  extent  this  result  is 
actually  experienced  in  the  future,  to  that  extent 
will  the  statistics  of  the  past  prove  to  have  been 
false  guides  for  the  future.  ^Moreover,  if  in  reality 
Municipal  Trade  has  already  raised  the  rate  of 
interest,  it  appears  for  the  following  reasons  that 
municipal  statistics  do  not  e^•en  now  represent  the 
true  cost  to  the  public  of  these  undertakings ;  an 
error  which  will  increase  with  every  advance  of 
^Municipal    Trade.     No    doubt,   when    the    rate    of 

>  M.T.R.,  gs.  1550  and  3137. 
Q 


242  MUNICIPAL  STATISTICS  [chap.  vin. 

interest  paid  on  the  loans  raised  by  Local  Authorities 
for  industrial  purposes  has  risen  from  any  cause  not 
affecting  private  trade,  the  results  will  be  apparent  in 
the  rate  of  net  profits  earned  by  the  miniicipalities 
in  question.  But  the  rate  of  interest  payable  on 
all  otlier  municipal  loans  borrowed  at  the  same 
time  will  rise  equally ;  and  in  this  way  ISIunicipal 
Trade  may  throw  an  additional  charge  on  the 
ordinary  civic  expenditure  which  will  not  show 
itself  in  the  accounts  of  the  municipal  industries 
to  which  it  is  really  due.  Thus  the  effect  which 
Municipal  Trade  may  have  in  increasing  the  rate 
of  interest  on  municipal  loans  not  only  makes 
past  results  unreliable  as  guides  for  the  future,  but 
also  makes  the  recorded  net  profits  an  uncertain 
guide  as  to  what  municipalities  are  actually  gaining 
by  their  industrial  ventures. 

(30)  We  have  seen  reason  to  believe  that  the 
gas-works  which  passed  into  public  hands  some 
years  ago  are  noiv  more  profitable  than  those 
which  have  been  more  recently  acquired  by  Local 
Authorities,  and  it  is  very  important  to  enquire 
how  far  this  fact  should  influence  our  forecasts 
as  to  the  future.  If  the  making  of  greater  profits 
by  these  older  municipal  industries  is  to  be 
accounted  for  as  being  the  effect  of  the  gradual 
increase  of  business  as  time  went  on,  we  might 
expect  by  analogy  that  future  municipal  under- 
takings would  go  through  the  same  development, 
and  that,  consequently,  the  immediate  prospects  of 
any  new  venture  should  not  be  taken  as  a  guide 
for  its  future  prospects.  But  if  it  could  be  shown 
that  the  older  municipal  industries  were  always 
more  profitable,  on  the  average,  than  the  later  ones 


CHAP.  viiL]       INCREASE   OF   TOPULATION  243 

at  corresponding  periods  in  their  careers,  it  would 
follow  that  we  could  hold  out  no  such  flattering 
prospects  for  the  future,  and  we  should  have  to 
judge  the  future  more  by  the  immediate  past.  We 
do  not,  however,  know  whether  or  to  what  extent 
the  older  municipalisations  were  always  more  profit- 
able ;  and  all  we  can  do,  therefore,  is  to  enquire 
into  the  causes  which  are  likely  to  affect  the 
profits  of  municipal  trades  as  time  goes  on. 

(31)  In  making  this  enquiry  it  is  in  the  first 
place  to  be  observed  that  experience  shows  that 
a  well  estabhshed  industry  becoming  intrinsically 
more  profitable  is  a  rarer  contingency  than  its 
becoming  less  profitable  or  dying  out  because  of 
its  partial  or  total  supersession  by  other  industries 
or  inventions.  If  this  be  so,  it  is  more  probable 
that  gas-works  will  in  the  future  be  rendered 
less  profitable  by  competition  with  electrical- 
works,  and  tramways  less  profitable  by  competition 
with  motor  cars,  than  that  gas-works  and  tramways 
will  become  more  profitable  without  any  change 
occurring  in  the  local  surroundings.  Here,  then, 
we  have  a  cause  tending  to  make  municipal  trades 
get  less  remunerative  as  time  goes  on. 

(32)  Whatever  influence  the  probable  decay 
of  industries  should  have  on  our  forecasts  for 
the  future,  it  is  certain  that  this  cause  has 
produced  very  little  effect  on  English  Municipal 
Trade  in  the  past.  The  results,  if  any,  have  been 
swamped  by  the  effect  of  the  increase  in  popula- 
tion ;  and  it  is  in  the  growth  of  towns  that 
we  obviously  find  the  main  reason  why  municipal 
industries  tend  gradually  to  become  more  profit- 
able  as   time    goes    on.      Even    without    statistical 


244  MUNICIPAL  STATISTICS  [chap.  viir. 

proot,  it  cannot  be  denied  that  the  profits  on 
municipal  gas-works,  etc.,  have  tended  to  increase  ; 
but,  even  though  this  be  admitted,  there  are  two 
reasons  why  the  profits  now  made  in  industries 
which  have  been  a  long  time  in  public  hands 
should  not  be  taken  as  an  indication  of  the  profits 
likely  to  be  made  by  municipalities  on  their  new 
ventures  in  years  to  come.  The  first  of  these 
reasons  is  that  we  cannot  assume  that  the  increase 
of  population  which  has  occurred  in  the  past 
will  continue  at  the  same  rate  in  future ;  for  the 
recent  census  returns  indicate  a  considerable 
diminution  in  that  rate  of  increase,  or  even  that 
no  increase  at  all  will  be  made  in  future.  The 
increase  in  the  profits  made  by  municipal  mono- 
polies will  probably  cease  if  our  towns  cease  to 
grow. 

(33)  The  second  reason  why  the  results  of  the 
older  municipalisations  should  not  be  quoted  as 
guides  for  the  future,  at  all  events  as  regards  the 
municipalisation  of  the  same  industry,  is  because 
it  is  probable  that  these  older  ventures  have 
always  been  more  profitable  than  the  more  recent 
ones  in  the  same  industry.  In  considering  this 
point  it  is  necessary  to  refer  again  to  the  effect  of 
risks  on  profits.  The  apparent  risk  in  any  industry 
may  either  increase  or  decrease  as  time  goes  on ; 
but  as  it  has  seldom  increased  in  those  industries 
which  have  usually  been  municipalised,  and  as, 
had  it  done  so,  municipalities  would  seldom  have 
been  tempted  to  buy  the  works  of  private 
proprietors  in  these  circumstances,  what  we 
really  have  to  consider  is  the  effect  of  a  diminu- 
tion in    the    apparent  risk    in   particular    industries 


CHAP,  viii]  DECREASE   IN   RISK  245 

and  in  industries  generally.  The  rate  of  interest 
fell  considerally  during  the  last  half  of  the  last 
century ;  but,  in  so  far  as  this  fall  affected 
municipal  and  industrial  securities  alike,  it  had 
no  effect  on  municipal  net  profits.  That  this 
is  so  will  be  apparent  when  it  is  remembered  that 
municipal  net  profits  depend  on  the  difference 
between  the  rate  of  interest  paid  by  municipalities 
on  their  loans  and  the  rate  of  interest  paid  by  the 
bought  out  companies  to  their  shareholders  and 
creditors.  But  when  the  risk  connected  with 
any  industry  diminishes,  the  rate  of  interest,  as 
calculated  on  the  market  value  of  the  stocks 
and  shares,  inevitably  falls  m  comparison  with 
the  rate  of  interest  payable  by  municipalities  for 
their  loans ;  and  municipalities  buying  up  works 
after  such  a  fall  will  make  a  correspondingly 
smaller  net  profit  on  their  investment.  \Vhen  a 
private  company  has  been  allowed  to  take  the 
whole  risk  connected  with  any  industrial  concern 
for  many  years,  a  large  part  of  the  increase  in 
the  market  value  of  that  concern  has  usually 
been  allowed  to  pass  into  the  hands  of  tliat 
company ;  and  certainly  the  citizen  of  the 
districts  served  cannot  hope  to  reap  the  same 
rewards  as  if  they  themselves  had  taken  the  whole 
risk.  To  whatever  extent  this  is  the  true  ex- 
planation of  the  older  municipal  gas-works  being 
more  profitable  than  the  more  recent  municipal 
undertakings  in  gas,  to  that  extent  we  must  cease 
to  rely  on  this  difference  as  indicating  the 
probability  of  gas-works  now  being  municipalised 
becoming  in  future  as  profitable  as  these  older 
municipal    gas-works.       It     may     be     that     Local 


246  MUNICIPAL  STATISTICS  [chap.  viii. 

Authorities  now  buying  up  new  trades,  such  as 
electrical  works,  with  borrowed  money,  may  make 
large  profits  either  immediately  or  in  the  future  ; 
but  the  other  possibility,  namely  that  of  large 
losses  being  incurred,  must  also  be  held  in  view. 
But,  if  it  be  true  that  the  anticipated  risk 
has,  on  the  average,  been  diminishing  in  the 
industries  which  have  been  municipalised  in  the 
past,  the  average  results  of  municipal  trades  must 
not  be  accepted  without  reserve  as  indications  of 
tlie  profits  likely  to  be  made  in  the  future  by  the 
municipalisation  of  well  established  trades. 

(34)  We  have  endeavoured  in  this  chapter  to 
draw  certain  conclusions  from  the  statistics  of 
English  municipal  trades,  and  to  ascertain  to 
what  extent  reliance  may  justifiably  be  placed 
on  these  figures.  In  order  to  judge  whether  these 
statistical  results  accord  or  disaccord  with  the 
theoretical  conclusions  arrived  at  in  the  preceding 
chapter,  it  will  be  convenient  briefly  to  summarise 
the  foregoing  discussion.  But  before  doing  so,  it 
is  necessary  first  to  consider  the  whole  question  of 
municipal  statistics  in  connection  with  the  prices 
and  qualities  of  the  goods  supplied,  a  subject  which 
has  thus  far  hardly  been  touched  on. 


IX 

PRICE    AND    QUALITY 

(1)  The  low  fares  and  prices  which  are  said  to 
be  charged  when  public  bodies  manage  industries 
are  perhaps  mentioned  nearly  as  often  as  profits, 
as  an  argument  in  favour  of  municipal  enterprise. 
But  if  Local  Authorities  who  are  managing  and 
making  a  profit  out  of  gas-works,  for  example, 
should  lower  the  price  of  gas,  their  profits  would 
be  reduced  ;  and,  on  the  one  hand,  the  ratepayers 
would  be  injuriously  affected  by  having  to  make 
up  out  of  the  rates  the  deficiency  thus  created  in 
the  local  revenues  ;  whilst,  on  the  other  hand,  the 
consumers  of  gas  would  be  benefited  to  an 
approximately  equal  extent  by  the  reduction  in 
their  gas  bills.  It  is  true  that,  when  prices  are 
reduced  in  competitive  trades,  the  resulting  increase 
of  business  often  materially  compensates  the 
manufacturer  for  the  diminution  in  the  profit  on 
each  article  sold,  though  that  compensation  is 
often,  I  believe,  grossly  over-estimated.  I3ut,  in 
the  case  of  municipal  monopolies,  where,  for  the 
most  part,  private  proprietors  would  charge  higher 
prices  if  permitted  to  do  so,  no  considerable 
increase  of  trade  results  from  a  moderate  reduction 
in  prices,  and  the  owners  of  such  monopolies  as  a 
rule   lose    almost  in    proportion    to    the    reductions 

247 


248  PRICE  AND  QUALITY  [chap.  ix. 

made  in  prices.  If  we  may  be  allowed  to  hold 
that  the  disadvantages  to  one  class  cancel  the 
advantages  to  another  class,  it  follows,  therefore, 
that,  in  a  sense,  the  community,  as  a  whole,  will 
be  but  little  affected  either  beneficially  or  in- 
juriously by  any  changes  in  the  prices  of  the 
goods  usually  manufactured  by  public  bodies.  We 
shall,  it  is  true,  in  chap.  xii.  see  reason  to 
believe  that  municipalities  and  private  companies 
ought  to  charge  prices  on  about  the  same  level ; 
but,  even  if  this  conclusion  be  admitted,  it  leaves 
a  fiiirly  wide  margin  of  doubt  as  to  the  prices 
which  ought  to  be  charged  in  non-competitive 
trades.  Within  this  margin  of  doubt,  whatever 
may  be  the  effect  on  different  classes,  it  may 
therefore  be  said  that  the  community,  as  a  whole, 
is  hardly  affected  by  changes  in  the  prices  of 
goods  manufactured  in  municipal  trades  ;  and  from 
this  conclusion  it  obviously  follows  that  there  is 
no  theoretical  difficulty  in  answering  the  question 
whether  the  community  as  a  whole  has  or  has  not 
gained  financially  by  the  introduction  of  JMunicipal 
Trade  without  reference  to  the  exact  le\'el  of  prices 
charged  either  by  Local  Authorities  or  by  private 
traders. 

(2)  In  the  preceding  chapter  we  endeavoured  to 
estimate  the  amount  that  English  municipalities  are 
actually  gaining  by  their  trading  enterprises;  and 
this  we  did  by  first  estimating  the  net  profits 
which  actually  form  part  of  their  available 
revenues,  and  then  deducting  from  these  net 
profits  any  rents  or  other  sums  which  these 
municipalities  would  have  received  if,  instead 
of  undertaking   the   management   themselves,   they 


CHAP.  IX.]  PRICES   AND   RENTS  249 

had  left  the  municipahsed  industries  in  private 
hands.  These  hypothetical  rents,  it  was  remarked, 
would  obviously  vary  with  the  terms  of  the  con- 
cessions which  might  have  been  granted  to  the 
private  companies ;  but,  if  we  could  ascertain  the 
rents  which  companies  would  have  been  willing 
to  pay  if  bound  to  carry  on  the  trades  now 
municipalised  on  exactly  the  same  lines  as  the 
municipalities  now  managing  them,  we  should  thus 
get  the  exact  deduction  we  Avant  to  find.  If 
municipalities  were  to  raise  their  prices,  their 
profits  would  increase ;  but  these  hypothetical 
rents  would  rise  also ;  and  the  difference  between 
the  two,  or  the  gain,  would  be  but  little  affected 
by  any  such  changes  in  prices.  The  gain  thus 
ascertained  would  represent  the  sum  which  English 
communities  as  a  whole  have  actually  gained  by 
their  Local  Authorities  having  undertaken  the 
management  of  certain  undertakings  ;  and  this  gain 
thus  ascertained  would  be,  as  it  should  be,  inde- 
pendent of  the  prices  charged  either  in  municipal 
or  in  private  trade.  It  would,  in  fact,  be  what  we 
want  to  ascertain. 

(3)  Unfortunately,  as  we  have  seen,  we  cannot 
estimate  with  any  accuracy  the  rents  which  could 
be  extracted  from  private  companies  in  these  cir- 
cumstances. Such  vague  guesses  as  can  be  made 
must  be  based  on  the  rents  now  actually  paid  by 
existing  companies ;  and  these  rents  depend  on 
the  prices  actually  charged  by  these  companies. 
Thus  we  are  driven  to  include  in  our  calculations 
the  very  element  we  wish  to  exclude,  namely  tlie 
relative  level  of  prices  in  private  and  in  Municipal 
Trade. 


250  PRICE  AND  Ql^ALITV  [chap.  ix. 

(4)  We  are,  tlierefore.  tempted  to  seek  some 
other  metliod  of  estimating  the  gain  made  by 
commimities  from  the  trades  managed  by  their 
municipal  representatives.  Is  it  not  possible  to 
divide  the  enquiry  into  two  parts  ?  May  we  not 
in  the  first  place  enquire,  without  any  reference  to 
these  hypothetical  rents,  what  ratepnyers  have 
actually  gained  or  lost  by  the  profits  or  losses 
made  in  Municipal  Trade  ?  And,  in  the  second 
place,  is  it  not  possible  to  ascertain  how  much  the 
consumers  of  goods  supplied  by  municipalities  have 
gained  or  lost  in  consequence  of  the  payment  of  a 
lower  or  higher  price  than  would  have  been  charged 
had  the  municipalised  industries  been  left  in  private 
hands  ?  If  the  enquiry  can  thus  be  divided  into 
two  parts,  and  if  no  erroneous  assumptions  are  tlius 
introduced,  it  is  obvious  that,  by  adding  together 
the  results  thus  obtained,  we  have  a  method  of 
ascertaining  the  financial  effects  of  Municipal  Trade 
on  the  community  as  a  whole. 

(5)  As  to  the  first  half  of  this  enquiry,  namely, 
the  estimation  of  the  net  profits  or  losses  which  have 
been  made  or  which  are  likely  to  be  made  in  muni- 
cipal trades,  an  attempt  to  ascertain  this  information 
was  made  in  the  preceding  chapter.  It  was  seen  that, 
according  to  the  Local  Government  Board  Returns, 
English  municipalities  have,  on  the  average,  made 
a  gross  profit  of  3*8  per  cent,  on  their  remunerative 
undertakings ;  and  an  estimate  was  made  of  the 
cliarges  for  repayment  of  principal  and  interest 
which  should  be  deducted  from  the  gross  profit  in 
order  to  ascertain  the  future  available  net  profit  or 
loss.  This,  in  fact,  constitutes  the  first  part  of  the 
enquiry  now  suggested  ;    and,  as  to  this   part,  the 


CHAP.  IX.]  COMPARISONS   OF   PRICES  251 

reason.s  previously  given  for  doubting  both  tlie 
accuracy  of  any  results  deduced  from  the  I./Ocal 
Government  Board  Returns  and  their  applicability 
as  guides  for  future  action  all  hold  good.  The 
second  half  of  the  enquiry,  or  the  gain  or  loss  to 
the  consumer,  must  now  be  considered.  The  level 
of  prices  actually  charged  in  municipal  trades  and 
the  level  of  prices  which  would  have  been  charged 
had  these  trades  remained  in  private  hands,  should 
first  be  ascertained ;  and  this  difference  of  price,  if 
ascertainable,  together  with  the  total  volume  of 
trade  as  indicated  by  the  Local  Government  Board 
Returns,  would  give  all  the  necessary  data  for 
ascertaining  how  much  consumers  have  actually 
gained  or  lost  as  the  result  of  JMunicipal  Trade. 
We  have,  therefore,  now  to  enquire  whether  it  is 
possible  to  obtain  the  required  information. 

(6)  It  is  obvious  that  any  comparison  between 
the  prices  actually  charged  in  municipal  trades  and 
the  prices  which  would  have  been  charged  had  the 
municijxdised  industries  remained  in  private  hands 
must  be  based  on  a  comparison  between  the  prices 
actually  charged  in  municipal  trades  and  the  prices 
actually  charged  in  private  trades.  Here  we  meet 
with  our  first  difficulty.  If  we  compare  the  prices 
charged  by  a  municipality  in  one  locality  with  the 
prices  charged  by  a  private  company  in  another 
locality,  we  must  take  all  the  local  circumstances 
into  account.  Taking  gas  as  an  example,  we  see 
that  its  price  depends  on  its  illuminating  power,  on 
the  amount  manufactured,  on  the  price  of  coal,  on 
the  local  demand  for  by-products,  on  the  price  of 
labour,  and  on  the  density  and  habits  of  the  popu- 
lation.     If  the    price   of   gas    in   two    localities   is 


252  PRICE  AND  QUALITY  [chap.  ix. 

compared  without  makiiifr  proper  allowance  for 
each  one  of  these  circumstances,  tlie  results  will 
be  misleading ;  because  such  a  comparison  miglit 
make  the  more  efficiently  managed  works  appear 
to  be  the  worse.  The  late  Sir  Courtenay  Boyle, 
Permanent  Secretary  to  the  Board  of  Trade, 
informed  the  Committee  on  Municipal  Trading 
that  "  the  average  receipts  per  1000  cubic  feet  of 
gas  sold  was,  in  the  case  of  Local  Authorities, 
3s.  0.4d.  as  compared  with  3s.  G.2d.  received  by 
"  companies.  This  would  indicate,"  he  added,  "  that 
"generally  the  price  charged  to  consumers  was 
"  higher  in  the  case  of  companies  than  I^ocal 
"  Authorities,  but  in  making  such  a  comparison  it 
"  should  be  borne  in  mind  that  the  districts  served 
"  by  T^ocal  Authorities  are  usually  the  most  populous, 
"  and  therefore  the  most  remunerative  "  ;  ^  and  that, 
"  on  the  whole,  the  returns  do  not  suggest  that 
"  in  like  circumstances  there  is  any  great  balance 
"  of  advantage  to  the  consumer  as  regards  the  price 
"  charged  in  being  supplied  by  a  Local  Authority 
"  instead  of  by  a  company."  ^  Thus,  according  to  the 
opinion  of  so  high  an  authority  as  Sir  Courtenay 
Boyle,  it  appears  that  a  difference  in  the  price  of 
gas  of  over  16  per  cent,  between  two  large 
groups  of  towns  may  be  mainly  accounted  for 
by  the  difference  of  the  circumstances  in  the  two 
cases.  From  this  it  follows  that  any  comparison 
between  the  average  prices  charged  for  gas  in 
one  set  of  towns  by  private  companies  with  the 
average  prices  charged  in  another  set  of  towns  by 
municipalities  would  not  enable  us  to  make  even 
a  moderately  accurate  estimate  of  the  prices  which 

1  M.T.R.,  Q.  42.  2  jj^-^^  p  351^ 


CHAP.  IX.]  COMPARISONS   OF   PRICES  25S 

would  have  been  charged  by  private  companies  in 
the  towns  now  supplied  by  Local  Authorities. 

(7)  The  circumstances  with  regard  to  the  gas 
industry  are  not  exceptional ;  for  in  other  trades 
similar  difficulties  are  met  with,  and  the  comparison 
between  the  prices  reasonably  charged  in  different 
localities  may  present  even  greater  obstacles. 
With  regard  to  tramways,  for  example,  the  more 
dense  the  population  the  lower  would  be  the 
fares,  if  they  were  regulated  by  the  cost  of  the 
service ;  but,  though  this  is  clear  enough,  it  is 
exceedingly  difficult  to  estimate  the  allowance 
which  should  be  made  on  this  account  in  attempt- 
ing to  compare  the  fares  charged  in  different 
places.^  As  to  electric  hghting  undertakings,  it 
has  been  said  that  "  no  problem  in  economics 
"  has  yielded  more  discordant  solutions  than  has 
"  the  problem  of  the  comparative  value  of  muni- 
"  cipal  and  private  ownership " ;  and,  if  prices 
can  only  be  compared  without  correction  in 
"  similarly  situated  stations  where  the  load  curve 
"is  of  similar  form  and  area,"  this  is  not 
surprising.^  As  to  water  supply,  the  capital 
expenditure  is  so  great  in  comparison  with  the 
working  expenses,  and  varies  so  immensely  in 
different  localities,  that  comparisons  of  water-rates 
tell  almost  nothing  as  to  the  relative  merits  of 
different  systems  of  management. 

(8)  For  the  purposes  of  this  discussion,  the 
best  method  of  making  a  reliable  comparison  be- 
tween the  prices  charged  under  the  different  systems 

1  M.T.R.,  Qs.  4097  and  4105. 

2  "  Municipal  Monopolies,"  Bemis,  Article   by  Dr  F.  A.  C   Peirine, 
pp.  286,  290. 


254  PRICE  AND  gFAUTY  [chap.  ix. 

of  management  in  different  localities  would  be  to 
select  pairs  of  towns  where  the  circumstances  are 
similar,  and  where  the  industry  under  examination 
is,  in  the  one  case,  in  public  hands,  and,  in  the 
other,  in  private  hands ;  and  to  compare  the  prices 
charged  in  each  pair  of  places.  This  Sir  George 
Livesey  has  attempted  to  do  in  the  case  of  the 
gas  trade,  with  the  result  that,  by  a  simple  inspec- 
tion of  the  figures  supplied  by  him,  it  cannot  be 
ascertained  which  charges  most,  priv^ate  companies 
or  municipalities.^  By  taking  averages  of  the 
figures  given  by  him,  I  make  out  that  companies 
charge  gd.  per  1000  cubic  feet  more  than 
Local  ^Vuthorities,  a  very  different  figure  fi'om 
that  mentioned  by  Sir  Courtenay  Boyle,  l^ut, 
even  if  this  method  of  grouping  is  the  best  avail- 
able, it  is,  nevertheless,  open  to  grave  objections. 
It  is  almost  impossible  to  avoid  some  unconscious 
prejudice  in  the  selection  of  the  groups  for  com- 
parison. This  method,  moreover,  takes  no  account 
of  quality,  an  omission  so  important  that  if  it 
were  accurately  allowed  for,  it  might  easily  alter 
the  result  in  the  above  comparison,  one  way  or 
the  other,  by  far  more  than  }?d.  per  1000  cubic 
feet.  These  two  considerations  merely  throw 
doubts  on  the  accuracy  of  this  method ;  but 
wlien  it  is  suggested  that  municipalities  have 
certain  advantages  not  easily  eliminated  in  this 
way,  the  doubt  is  whether  the  results  do  not  tell 
unfavourably  in  one  direction.  For  example,  where 
the  conditions  are  most  favourable,  there  munici- 
palities will  be  most  likely  to  undertake  the  work 
themselves  ;    a   reason  which  has  been  assigned  for 

»  M.T.R.,  p.  490. 


CHAP.  IX.]  COMPARISONS   OF  PRICES  255 

the  higher  average  price  of  electricity  suppHed  by 
private  as  compared  with  pubHc  enterprises/  In 
a  similar  way,  the  lower  prices  charged  by  public 
bodies  may  be  due  to  their  not  pushing  their 
industries  into  the  less  paying  outlying  districts, 
which  are  often  under  other  Local  Authorities ; 
though  it  is  true  that  the  advocates  of  municipal 
enterprise  sometimes  claim  its  greater  progressive- 
ness  as  one  of  its  merits.  Again,  the  price  of 
electricity  depends  on  the  extent  to  which  the 
plant  is  used  for  the  lighting  of  streets ;  and  this 
branch  of  the  industry  is  likely  to  be  more  rapidly 
developed  where  the  municipality  itself  manages 
the  electrical  works.'  Local  Authorities  are,  in 
the  case  of  municipal  trades,  both  the  buyers  and 
sellers  of  water,  gas,  electricity,  etc.,  and  it  has 
been  suggested  that  the  result  is  that  there  is  a 
tendency  to  book  a  higher  price  for  the  goods 
supplied  for  the  public  use  than  would  be  actually 
given  if  they  were  bought  from  a  private  company, 
when  the  bargaining  would  be  more  keen.  VMiere 
this  is  the  case,  municipalities,  whilst  obtaining  the 
same  gross  revenue  as  private  companies,  are  thus 
enabled  to  sell  the  same  article  at  a  lower  price  to 
ordinary  consumers.  If  the  practice  in  a  certain 
gi'oup  of  towns,  where  "  the  charges  for  the  electrical 
"hghting  of  the  streets  ranged  from  3-53d.  to  .5'90d., 
"  whereas  the  commercial  value  of  the  light  as  sup- 
"  plied  in  each  case  should  not  be  more  than  2U1. 
"or  3d,"  may  be  taken  as  typical,  this  question  is 
a  most  important  one.^  In  any  case,  it  is  obvious 
that  the  prices  of  goods  supplied  both  to  the  public 

1  M.T.R.,  Q.  220.  -^  M.T.R.,  Q.  1163. 

■'  Times^  28th  August  1902. 


256  PllICE  AND  QUALITY  [chap.  ix. 

and  to  private  consumers  must  be  considered  in  any 
comparison.  All  the  foregoing  appear  to  me  to  be 
legitimate  reasons  for  suspecting  that  municipalities 
are  able  to  keep  down  the  price  of  goods  supplied 
to  ordinary  consumers  in  ways  which  should  not 
tell  in  favour  of  municipal  enterprise  in  this  con- 
troversy, although  such  reductions  in  prices  would 
of  course  affect  the  results  of  any  comparison 
between  carefully  selected  pairs  of  towns. 

(9)  Thus  there  appear  to  be  almost  insuperable 
difficulties  in  making  an  accurate  comparison  be- 
tween prices  charged  in  municipal  trades  in  one 
locality  and  prices  charged  in  private  trades  in 
another  locality.  Many  of  these  difficulties  are 
avoided  if,  when  works  are  municipalised,  we  com- 
pare the  prices  charged  before  and  after  the  change 
in  the  management.  We  thus  avoid  all  questions 
connected  with  local  circumstances ;  but  we  avoid 
them  only  to  meet  with  other  difficulties  equally 
insurmountable.  No  doubt,  it  is  often  urged  by 
those  who  are  arguing  in  favour  of  municipalisation, 
that  prices  and  fares  have,  as  a  fact,  been  greatly 
reduced  by  municipalities  after  they  have  under- 
taken the  management  of  different  trades.  The 
facts  are  very  often  as  stated ;  but,  taken  by  them- 
selves, these  reductions  tell  absolutely  nothing  what- 
ever. No  doubt,  municipalities  owning  gas-works 
have  greatly  reduced  the  prices  of  gas  in  recent 
years  ;  but  so  also  have  private  companies.  And 
if  it  be  a  fact,  as  stated  by  Sir  (ieorge  Livesey, 
that  tiie  reduction  in  average  prices  between  1883 
and  1899  was  barely  ^d.  per  1000  cubic  feet  in  the 
case  of  municipal  gas-works  as  compared  with  a 
trifle   over    Gd.    in   the    case   of    private    companies, 


CHAP.  IX.]  REDUCTION   IN   PRICES  257 

the  argument  based  on  the  reduction  of  prices 
tells  in  this  instance  for  what  it  is  worth  against 
municipahsation.^  It  is  even  more  useless  to 
quote  the  reductions  in  prices  or  fares  made  by 
Local  Authorities  when  they  are  able  to  obtain 
possession  under  statutory  powers  of  electrical 
works  or  tramway  lines  at  the  end  of  given 
periods ;  for,  as  will  be  seen  presently,  whoever  then 
undertakes  the  business,  whether  they  have  managed 
it  before  or  not,  ought  to  be  able  to  make  reductions 
in  charges  without  loss  of  income. 

(10)  This  latter  point  necessitates  again  referring 
to  the  effect  of  tlie  terms  of  the  concessions 
gi-anted  to  private  companies  on  tlie  prices  charged 
by  them.  In  the  first  place,  if  a  company  was 
paying  a  rent  to  a  municipality  before  it  was 
bought  out,  it  is  obvious  that  the  Local  Authorities 
would  be  able  to  reduce  prices  or  fares  after 
municipalisation  and  to  show  a  profit,  if  they  did 
not  continue  to  debit  to  the  works  a  sum  equivalent 
to  that  rent.  ^Mlether,  accordhig  to  the  method 
suggested  in  previous  paragraphs,  we  compare  the 
fares  charged  by  existing  tramway  companies  with 
the  fares  charged  by  neighbouring  municipalities 
owning  tramways,  or  whether,  as  now  suggested, 
we  compare  the  fares  charged  in  the  same  locality 
before  and  after  the  municipalisation  of  the  tram- 
ways, we  must  take  full  account  of  any  rent  actually 
paid  by  the  private  com])anies  in  question ;  and 
this  must  be  done  either  by  making  for  the  purposes 
of  this  comparison  a  proportionate  deduction  from 
the  fares  actually  charged  by  these  private  com- 
panies,  or,    as    suggested    in    previous    chaptei's,    by 

1  M.T.R.,  Q.  3258. 


258  PRICE  AND  Ql^VLITY  [chap.  ix. 

deducting  these  rents  from  tlie  municipal  profits  in 
order  to  estimate  the  gain  to  the  community. 

(11)  There  are,  moreover,  other  circumstances 
connected  with  the  conditions  attached  to  termin- 
able concessions  which  affect  the  prices  charged  in 
trades  which  tend  to  become  monopolies ;  and  these 
circumstances  must  be  taken  into  consideration 
whether  we  are  comparing  prices  charged  by  muni- 
cipalities in  one  locality  with  the  prices  charged  by 
private  companies  in  another  locality,  or  whether 
we  are  comparing  the  prices  charged  before  tlie 
municipalisation  of  any  undertaking  with  tlie  prices 
charged  after  the  change  in  the  management.  Under 
all  forms  of  terminable  concessions,  the  Local  Autho- 
rities concerned  are  given  the  right  to  buy  any  under- 
takings managed  by  private  companies  at  the  end 
of  a  concession  period  at  a  valuation,  the  price  paid 
not  being  dependent,  as  a  general  rule,  on  the 
market  price  of  the  shares.  But,  in  starting  nearly 
all  industries,  there  is  a  certain  amount  of  initial 
expenditure  for  which  no  valuable  asset  can  be 
shown ;  and  goods  must  be  sold  at  a  loss  for  a 
certain  period,  short  or  long,  after  the  opening 
of  any  works,  because  the  establishment  is  then 
suitable  for  a  larger  supply  than  is  demanded.  This 
expenditure  and  these  losses  are  often  capitalised 
as  "  good  -  will "  in  private  enterprises  ;  and  this 
"good- will"  may  count  for  little  or  nothing  in  the 
valuation  of  the  works  at  the  termination  of  the 
concession  when  the  price  to  be  paid  by  the 
municipality  is  being  decided.  The  actual  cost  of 
erecting  the  works  will  perhaps  as  a  general  rule 
be  recovered  by  the  shareholders  at  the  end  of  a 
limited  concession  if  the  works  are  then  purchased 


CHAP.  IX.]  LIMITED  CONCESSIONS  259 

by  a  municipality.  But  in  order  to  enable  the 
company  promoter  to  attract  the  necessary  capital, 
a  good  hope  must  be  held  out  that  the  unavoid- 
able initial  expenditure  and  losses  will  also  have 
been  recovered  out  of  the  profits  made  before  the 
works  could  be  compulsorily  purchased ;  and,  in 
order  to  make  this  possible,  the  private  proprietors 
must  be  allowed  to  charge  higher  fares  or  prices 
than  need  have  been  allowed  if  the  concession  had 
been  granted  in  perpetuity.  This  is,  in  effect, 
taxing  the  goods  sold  in  order  to  pay  off  part 
or  all  of  the  unavoidable  initial  expenditure  to 
the  ultimate  benefit,  not  of  the  shareholders,  but 
of  the  public  as  taxpayers  or  consumers. 

(12)  But  the  foregoing  is  not  the  only  point 
of  difference  between  limited  and  perpetual  con- 
cessions as  regards  prices.  The  risk  attached  to  any 
industrial  enterprise  is  generally  considerable,  and 
is,  moreover,  likely  to  be  greatest  during  the  first 
few  years  after  its  initiation  ;  and  whoever  undertakes 
to  run  that  risk  must  be  compensated  accordingly. 
The  interest  paid  to  tlie  shareholders  in  private  com- 
panies is  partly  in  effect  an  insurance  premium  paid 
to  them  for  taking  such  risks.  If  the  industry  is 
one  which  is  likely  to  grow,  and  this  is  the  normal 
expectation  in  all  cases,  it  may  be  wise  to  post- 
pone, as  it  were,  the  collection  of  part  of  this 
insurance  premium  to  a  subsequent  period,  when 
the  business  will  have  become  more  lucrative ;  for, 
if  this  is  not  done,  the  prices  cliarged  cannot  be 
uniform,  it  being  necessary  to  cliarge  on  a  higher 
scale  at  first  in  order  to  collect  the  same  insurance 
preinium  out  of  the  smaller  volume  of  business. 
But   if  the   concession   is  for  a  limited  period,  the 


260  PRICE  AND  QUALITY  [chap.  ix. 

collection  of  the  insurance  premium  by  the  company 
cannot  he  j)Ostponed  beyond  the  termination  of  that 
period,  and  it  is  necessary  therefore  to  charge 
higher  prices  than  would  have  been  required  under 
a  perpetual  concession.  For  this  reason,  and  for 
the  reason  given  in  the  preceding  paragraph,  it 
appears  probable  that  the  prices  charged  in  muni- 
cipal trades  will  be  normally  lower  at  first  and  higher 
afterwards  than  the  prices  charged  in  private  trades 
working  under  terminable  concessions  and  initiated 
at  the  same  date. 

(13)  Thus  far  we  have  chiefly  had  in  view 
the  case  of  going  concerns  bought  by  Local 
Authorities.  But  it  must  be  remembered  that,  if 
a  municipality  either  builds  its  own  works  or  buys 
them  ready-made,  it  is  in  effect  granting  to  itself  a 
perpetual  concession ;  for  there  is  no  one  in  this  case 
who  can  buy  up  the  works  at  less  than  their  cost 
at  any  future  period.  It  follows,  therefore,  that 
neither  the  prices  charged  by  a  municipality  which 
has  built  its  own  works,  nor  the  prices  charged  by 
one  which  has  bought  the  works  at  the  end  of  a 
concession,  should  be  compared  with  the  prices 
charged  by  private  companies  working  under  limited 
concessions,  unless  an  allowance  be  made  for  the 
effects  of  this  limitation ;  an  allowance  almost  im- 
possible to  make. 

(14)  Thus  far  we  have  been  discussing  the 
comparison  between  the  prices  actually  charged  in 
municipal  trades  and  the  prices  actually  charged 
in  private  trades,  and  considering  the  corrections 
necessary  to  make  the  comparison  a  fair  one.  The 
comparison  which  we  ought  to  make  is,  however, 
that  between  the  prices  actually  charged  in  muni- 


CHAP.  IX.]  LDIITED   CONCESSIONS  261 

cipal  trades  and  the  prices  which  would  have  been 
charged  had  the  municipahsed  industries  remained 
in  private  hands.  This  introduces  a  new  difficulty. 
To  make  such  a  comparison  even  theoretically 
possible,  we  must  know  on  what  terms  the  now 
municipalised  industries  would  have  been  left  in 
private  hands.  If  we  assume  that  terminable  con- 
cessions would  have  been  granted  to  the  managing 
companies,  then  probably  the  difficulties  already 
mentioned  are  all  that  have  to  be  encountered  in 
the  case  of  municipal  tramways,  electrical  works, 
and  other  industries  which,  when  in  private  hands, 
are  managed  under  terminable  concessions.  But 
the  prices  actually  charged  for  gas  by  gas  companies 
under  existing  conditions  afford  but  an  insecure 
indication  as  to  the  prices  which  would  have  been 
charged  had  existing  gas  companies  been  working 
for  many  years  under  terminable  concessions.  If, 
on  the  other  hand,  we  assume  that  any  of  the  now 
municipalised  industries  would  have  been  worked 
by  private  companies  under  perpetual  concessions, 
we  are  not  making  the  enquiry  which  is  most  useful 
to  us ;  that  is  if  it  be  our  object  to  compare  the 
relative  merits  of  JNIunicipal  Trade  and  private 
trade  managed  under  terminable  concessions.  How- 
ever, as  my  object  is  to  show  that,  on  any  supposi- 
tion, the  difficulties  met  with  when  attempting  to 
make  any  useful  comparison  of  prices  are  almost 
insurmountable,  the  subject  need  hardly  be  laboured 
any  further. 

(15)  The  following  is  therefore  the  result  of 
this  enquiry  into  relative  prices.  Any  comparison 
of  mere  a\'erage  prices  will  \'ery  likely  be 
found     to     indicate      that      the      prices     actually 


262  PRICE  AND  QUALITY  [ch.u'.  ix. 

charged  by  private  proprietors  are  higher  than 
those  charged  by  pubhc  bodies.  But  statistics  as 
to  such  prices  have  never  been  systematically  and 
authoritatively  collected  and  compiled ;  and  it  is 
therefore  impossible  to  say  how  much  higher  are 
the  prices  charged  in  private  trade.  And  even  if 
it  were  possible  to  indicate  the  exact  relative  level 
of  average  prices  in  the  two  cases,  this  would  not 
decide  the  question  as  to  which  system  of  manage- 
ment is  really  most  beneficial  to  the  consumer ; 
for  the  results  of  all  comparisons  between  the  prices 
charged  by  public  and  private  producers  are,  as  we 
have  seen,  vitiated  for  one  or  more  of  the  following 
reasons.  JNIunicipalities  are  apt  to  undertake  the 
management  of  industries  where  the  circumstances 
appear  most  favourable  ;  that  is,  where  it  is  possible 
to  charge  prices  low  in  comparison  with  the  prices 
charged  in  other  towns.  JNIunicipalities  may,  more- 
over, be  able  to  favour  their  own  manufactories  in 
ways  not  open  to  private  traders ;  as,  for  example,  in 
developing  the  lighting  of  streets  by  electricity,  and 
in  fixing  a  high  price  for  such  services  as  are 
rendered  to  the  public ;  and  it  is  asking  too  much 
of  human  nature  to  expect  that  no  advantage  will 
be  taken  of  the  power  of  making  a  favourable  show 
which  public  bodies  thus  possess.  Local  Authorities 
are  all  working  in  effect  with  perpetual  concessions  ; 
whereas  many  companies  are  tied  down  by  the 
provisions  of  concessions  lasting  for  limited  periods, 
and  since  the  bulk  of  JNIunicipal  Trade  is  of  recent 
growth,  higher  prices  must  often  be  charged  in 
order  to  reduce  the  capital  account  to  the  amount 
likely  to  be  obtained  if  the  works  are  bought  at 
the  end  of  the   concession   period.     Rents   are   also 


CHAP.  IX.]  SUMMARY   AS   TO   PRICES  263 

sometimes    paid    by   private    companies,   whilst    no 
corresponding   deduction   is   made   from   the   profits 
of   municipal    industries.     And   these    hmited   con- 
cessions, at  all  events  near  the  end  of  the  concession 
period,  often  render  it  impossible  to  introduce  costly 
improvements    which    would     have     the    result     of 
making    a    reduction     in     prices    possible ;    as,    for 
example,   the   delay   in   the   change    from   horse   to 
electric    traction    on    tramways    such    as    was    ex- 
perienced  in   nearly   all    our    important    cities   and 
towns.     When    all    these    circumstances    are    fully 
taken  into  account,  it  is,  I  think,  impossible  to  say 
whether   the   facts    of    the    case   are   insufficient   to 
compensate   for  the  higher  prices  probably  charged 
by  private  proprietors,  or  whether  they  are  sufficient 
to  more  than  compensate  for  them.     Moreover,  what 
we  ought  to  ascertain  is  the  prices  which  w^ould  have 
been  charged  by  private  proprietors,  and  the  rents 
which  would  have  been  received  from  them,  had  the 
now   municipalised    industries    been    committed    to 
private  management ;   and   actual   prices  and  rents, 
especially  in  certain  trades,  afford  an  insecure  guide 
in  any  such  enquiry.     In  short,  if  INIunicipal  Trade 
be  regarded  merely  from  the  point  of  view  of  the 
consumer,  we  are  not  now  in  a  position  to  determine 
which  way  the  balance  of  argument  tells. 

(IG)  Thus  far  we  have  merely  been  considering 
price  without  reference  to  quahty ;  and  this  is  all 
that  need  be  considered  if  by  price  is  meant  the 
price  of  goods  of  a  given  quality.  As  to  electricity, 
the  voltage  ought  to  be  readily  measurable,  and 
"  quality  "  can  hardly  introduce  any  serious  elements 
of  difficulty  into  statistical  comparisons.  But  this 
cannot  be   said  to  be  the   case  with   regard   to   any 


264.  PRICE  AND  QUALITY  [chap.  ix. 

other  goods  commonly  manufactured  by  public 
bodies.  AVe  might  be  accurately  informed  of  the 
relative  illuminating  power  of  different  supplies 
of  gas ;  but  this  would  leave  unsolved  not  only 
all  questions  connected  with  the  adjustment  of 
relative  prices  to  allow  for  such  differences,  but 
also  the  still  more  difficult  problem  as  to  which  is 
best  for  consumers  generally,  a  gas  of  high  or  a  gas 
of  low  illuminating  power.  Consumers  who  burn 
gas  in  stoves  or  in  engines,  or  with  incandescent 
burners,  are  best  served  by  a  cheap  gas  of  low 
illuminating  power ;  whilst  other  consumers  prefer 
a  gas  of  higher  illuminating  power,  even  if  dearer. 
The  difference  in  \'alue  to  consumers  of  water  more 
or  less  completely  softened  w^ould  also  introduce 
similar  difficulties  into  statistical  returns  of  the  cost 
of  water  to  consumers,  if  such  returns  were  ever 
made.  Then  as  to  tramways,  the  greater  the  number 
of  cars  running  per  hour,  and  the  better  the  pace 
and  accommodation  of  these  cars,  the  higher  must 
be  fares  ;  but  differences  like  these  in  the  quality  of 
the  services  rendered  to  the  public  cannot  possibly 
be  included  or  allowed  for  in  statistical  tables.  In 
fact,  comparisons  as  to  the  qualities  of  goods  sup- 
plied by  public  and  private  enterprises  appear  to 
me  to  involve  even  greater  difficulties  than  any 
comparisons  as  to  prices  pure  and  simple. 

(17)  But,  it  may  be  said,  are  we  not  striving  at 
too  great  accuracy  ?  Should  not  all  such  questions 
be  regarded  broadly,  without  reference  to  results  in 
detail  ?  It  is,  no  doubt,  always  somewhat  objection- 
able in  any  enquiry  to  enter  into  details  which 
are  not  necessary  to  enable  the  questiojis  put  to 
be   definitely   answered.        But   can  any  conclusions 


CHAP.  IX.]  PRICE   AND   QUALITY  265 

be  drawn  with  regard  to  the  financial  a.spects  of 
Municipal  Trade  without  enquiry  in  detail  ?  In 
the  case  of  gas-works,  for  example,  we  see  that 
there  is  only  a  prospective  net  profit  on  muni- 
cipalisation  whilst  the  debts  are  being  redeemed 
of  about  one -half  per  cent.,  judging  by  the 
average  of  the  whole  returns  of  Enghsh  municipal 
enterprise,  and  assuming  them  to  be  correct.  Is 
this  so  wide  a  margin  that  minor  considerations 
may  be  neglected  ?  If  it  could  be  proved  that 
the  prices  charged  by  municipalities  have  been 
2^  per  cent,  higher  than  those  which  would 
have  been  charged  had  all  municipal  gas-works 
remained  in  private  hands,  then  it  could  be  shown 
that  the  statistics  of  this  trade  would  indicate 
that  without  a  rise  in  prices  there  is  no  prospect  of 
making  any  net  gain  by  the  municipalisation  of 
gas-works  now  in  private  hands  until  the  debts 
thus  incurred  were  completely  redeemed ;  whereas  if 
it  could  be  proved  that  municipalities  have  been 
charging  2^  per  cent,  less  than  private  traders, 
then  this  prospective  net  gain  at  existing  prices 
would  be  really  twice  as  large  as  the  statistics 
indicate  it  to  be.  Moreover,  if  it  be  remem- 
bered that  the  price  of  gas  differs  in  different 
towns  by  more  than  100  per  cent.,  and  that  the 
quality  of  the  gas  also  differs  to  such  an  extent  as 
to  make  a  coiTCction  in  price  of  15  to  20  per  cent, 
sometimes  necessary  to  allow  for  this  difference  in 
quality,  it  becomes  evident  that  this  margin  of 
21  per  cent,  is  not  very  great.  Again,  if  it  be 
permissible  to  forecast  the  future  from  the  past, 
and  if  it  be  assumed  that  no  other  deduction 
whatever    should    be    made   from   the   gross   profits 


266  PRICE  AND  QUALITY  [chai-.  ix. 

shown  by  the  Local  Government  Board  Returns,  a 
reduction  in  the  prices  charged  in  future  by  munici- 
pahties  of  only  8  per  cent,  on  the  present  average 
prices  would  result  in  the  whole  of  the  debt  created 
for  future  municipal  enterprises  having  to  be  paid 
off  out  of  rates  which  would  not  otherwise  have 
been  raised.  Thus  the  question  of  the  financial 
success  or  failure  of  Municipal  Trade  lies  within 
such  a  narrow  margin  of  doubt  that  questions  of 
detail  with  regard  to  price  and  quality  cannot  be 
excluded  from  the  enquiry. 

(18)  To  summarise  the  foregoing  discussion,  it 
appears  that,  as  a  first  step  towards  ascertaining 
whether  the  community  as  a  whole  is  likely  to  gain 
or  not  financially  by  Municipal  Trade,  we  must 
ascertain  the  average  gross  profits  made  by  exist- 
ing undertakings,  and  the  deductions  which  have 
to  be  made  from  these  profits  on  account  of 
interest  and  sinking  fund  charges.  This  enquiry 
as  to  the  probable  gain  to  the  taxjyayer  is,  as  we 
have  seen  in  the  preceding  chapter,  surrounded 
with  difficulties.  The  second  step  is  to  compare 
the  prices  now  charged  by  Local  Authorities 
with  the  prices  that  would  have  been  charged 
by  private  companies  had  the  undertakings  been 
committed  to  their  charge.  This  we  have  seen 
constitutes  an  even  more  difficult  enquiry.  Could 
accurate  results  have  been  obtained,  it  would 
have  been  easy,  on  the  assumption  that  the  past 
may  serve  as  a  guide  to  the  future,  to  calculate 
from  the  government  returns  now  available,  what 
is  likely  to  be  the  gain  or  loss  to  the  consumer 
from  public  management  in  future.  And,  if  the 
probable    financial    result    both    to    the    ratepayers 


CHAP,  rx.]       GENERAL  FINANCIAL  EFFECT  267 

and  to  the  consumers  could  be  accurately  ascer- 
tained, the  two  might  have  been  combined  in 
order  to  find  the  probable  financial  results  of 
Municipal  Trade  to  the  commimity  in  general. 
The  difficulty  connected  with  this  whole  enquiry 
is  perhaps  best  illustrated  by  the  fact  that,  not- 
withstanding all  that  has  been  written  on  this 
question,  no  one  has  yet  attempted  to  produce 
average  results  based  on  all  the  absolutely 
essential  factors  of  profits,  prices,  and  qualities. 
But  if  all  questions  connected  with  prices  and 
qualities  are  put  on  one  side,  the  result  of  any 
enquiry  will  be  valueless  as  an  indication  of  what 
the  community  as  a  whole  has  gained  or  lost  by 
its  municipal  remunerative  undertakings. 

(19)  In  chap.  vii.  an  attempt  was  made  to  ascer- 
tain on  a  piiori  grounds  what  is  likely  to  be  the 
financial  result  of  municipal  trading  to  the  nation ; 
and  in  chap.  viii.  and  in  this  chapter  the  statistics 
relating  to  English  municipal  undertakings  have 
been  examined  with  reference  to  profits,  prices, 
and  qualities.  It  is  now  necessary  to  consider 
whether  the  conclusions  arrived  at  from  statistics 
and  those  based  on  a  priori  arguments  harmonise 
or  run  counter  to  one  another;  and  finally  to 
attempt  to  draw  broad  conclusions  based  on  this 
whole  discussion. 

(20)  The  first  general  result  arrived  at  in  the 
course  of  the  foregoing  theoretical  discussion  was 
that  conclusions  should  not  be  drawn  from  the 
records  of  single  industries ;  because  the  financial 
results  of  JNIunicipal  Trade  are  largely  affected  by 
the  element  of  chance,  or,  rather,  by  circumstances 
which  could  not   have   been   foreseen ;   and   because 


268  PRICE  AND  QUALITY  [chap.  ix. 

out  of  the  net  profits  made  in  each  separate  industry 
an  insurance  fund  ouglit  to  be  formed  out  of  which 
the  losses  on  all  the  other  industries  undertaken  by 
the  same  municipality  should  be  covered.  This  con- 
clusion is  certainly  confirmed  and  not  refuted  by 
an  examination  of  the  facts  of  the  case.  .Judging 
by  the  statistics  of  the  past,  and  assuming  them  to 
be  accurate,  municipalities  now  buying  gas-works 
may  expect  to  make  a  net  profit  of  about  six 
per  cent,  on  their  investment  after  the  debts 
thus  incurred  have  been  redeemed ;  and  it  is  probable 
that  those  Local  Authorities  who  have  undertaken 
the  business  of  electric  lighting  had  mainly  in 
mind  these  encouraging  results  of  municipal  gas- 
works when  they  undertook  this  new  duty.  The 
results  of  these  latter  ventures,  which  at  present 
show  an  average  net  loss  of  over  £11,000  a  year 
to  English  municipalities,  certainly  do  not  refute 
the  maxim  tliat  it  is  unwise  to  base  estimates 
on  single  instances.  Some  municipal  trades  are 
worked  at  a  net  profit,  and  some  at  a  net  loss ; 
and  if  it  were  not  for  the  net  profits  made  on  muni- 
cipal gas-works,  there  would,  on  the  average,  be  at 
present  a  net  loss  on  English  municipal  undertakings. 
The  whole  of  the  anticipated  net  profits  from  the 
municipalisation  of  gas-works  should  not  therefore 
be  regarded  as  being  a  fund  which  would  be  a\'ail- 
able  for  the  relief  of  taxation.  If  silence  is  to  be 
kept  with  regard  to  the  losses  on  electric  light, 
piers,  harbours,  working-class  dwellings,  and  other 
services,  the  profits  on  gas-works,  water-works,  and 
tramways  must  not  be  brought  forward  each  as 
a  separate  argument  in  favour  of  Municipal  Trade. 
No  fact   has   been   adduced  which  shakes  the  con- 


CHAP.  IX.]        EFFECT   OF   COMMON   CAUSES  269 

elusion  that  INI  unicipal  Trade  must  be  regarded 
as  a  whole,  if  its  merits  and  defects  are  to  be 
fairly  weighed. 

(21)  In  order,  while  drawing  general  conclusions, 
to  eliminate  the  effect  of  fortuitous  circumstances, 
it  is  therefore  necessary  to  rely  mainly  on  the 
average  results  of  many  municipal  trades.  But  if 
some  common  cause  has  been  influencing,  or  is  likely 
to  influence,  all  industries  alike,  its  effect  will  not 
be  eliminated  in  average  results ;  and  such  results, 
like  the  results  of  single  trades,  may  thus  be 
rendered  unreliable  as  guides  for  the  future.  The 
population  has  been  increasing  in  almost  all  English 
urban  districts,  and  this  increase  of  population  has  no 
doubt  tended  to  make  Municipal  Trade  become  more 
and  more  profitable ;  but,  as  there  are  symptoms  of 
a  decrease  in  the  rate  of  increase  in  the  population, 
we  cannot  rely  on  the  increase  in  average  profits  in 
future  being  as  rapid  as  the  increase  in  the  past. 
Then,  again,  if  Municipal  Trade  is  ever  much  more 
extensively  undertaken,  there  will  probably  be  a 
general  rise  in  the  rate  of  interest  on  new  municipal 
loans  ;  and,  not  to  mention  its  effect  on  non-industrial 
loans,  this  will  make  the  average  net  profits  of  muni- 
cipal trades  initiated  in  the  future  less  than  the  exist- 
ing average  net  profits.  Hence,  though  average  results 
must  in  the  main  be  relied  on,  they  are,  neverthe- 
less, liable  to  be  vitiated  by  the  effect  of  temporary 
causes  affecting  many  industries  alike. 

(22)  Passing  on  to  average  results  with  this 
word  of  caution  as  to  their  reliability,  we  find  that 
English  municipal  undertakings  are  now  yielding 
a  gross  2^f'oJit  of  3*8  per  cent,  on  the  total  capital 
provided ;    whereas,  on   a  ijriori  grounds,  we  were 


270  PRICE  AND  QUALITY  [chap.  ix. 

led  to  expect  that  the  whole  of  the  repayments  of 
principal  would  fall  on  the  tax-payer;  or,  in  other 
words,  that  the  gross  gain,  or  the  gain  when  all 
debts  are  redeemed,  would  only  be  about  3  per 
cent.  Thus  the  Returns  at  first  sight  appear  to 
point  to  a  somewhat  more  hopeful  conclusion  than 
theory,  and  the  question  remains  whether  these  re- 
sults are  really  contradictory,  and  as  to  which  should 
be  relied  on  most  if  they  do  differ. 

(23)  The  consideration  in  this  chapter  of  the 
questions  connected  with  price  and  quality  has 
only  had  the  indecisive  result  of  throwing  a  serious 
doubt  on  all  attempts  to  compare  the  financial 
results  of  municipal  and  private  trade  in  the  same 
industry,  without  even  clearly  indicating  in  which 
direction  the  probable  error  lies.  The  difference 
between  our  theoretical  and  statistical  conclusions 
as  to  the  gain  made  by  municipalities  is  about  0*8 
per  cent,  on  the  capital  invested,  and  it  is  possible 
that  a  fair  allowance  for  the  difference  between 
the  price  and  quality  of  goods  supplied  by  muni- 
cipal and  by  private  enterprises  respectively  would 
nearly  account  for  this  discrepancy,  though,  on  the 
other  hand,  it  might  make  the  discrepancy  greater. 
As  to  most  of  the  other  reasons  given  in  previous 
chapters  for  doubting  the  results  deduced  from  the 
Retm*ns,  we  can  only  say  that  they  tend  to  show 
that  the  percentage  of  gross  profits  thus  obtained 
is  either  larger  or  smaller  than  the  figure  which 
would  truly  indicate  the  gain  to  the  community, 
the  facts  and  arguments  being  generally  too  vague 
to  be  translated  into  figures.  All  that  can  be  done 
is  to  summarise  the  foregoing  discussion  in  order 
to  enable  the  reader  to  judge  for  himself  to  what 


CHAP.  IX.]        RELIABILITY   OF  STATISTICS  271 

extent  his  confidence  in  these  figures  based  on  the 
Local  Government  Board  Returns  ought  to  be 
shaken. 

(24)  Three  reasons  were  given  for  believing  that 
the  Returns  under  consideration  afford  an  unduly  un- 
favourable indication  of  the  future  prospects  of  INIuni- 
cipal  Trade.  In  the  first  place,  the  capital  on  which 
the  percentages  of  average  profits  were  calculated  was 
the  total  capital  provided  at  the  end  of  the  given  period, 
and  for  this  reason  the  percentages  thus  obtained 
are  too  small.  The  second  reason,  to  which,  how- 
ever, comparatively  little  importance  was  attached, 
was  that  in  all  probability  a  certain  addition  ought 
to  be  made  to  the  gross  profits  in  ascertaining  the 
gain,  on  account  of  the  incorrect  inclusion  in  muni- 
cipal trading  accounts  of  certain  expenditure  con- 
nected with  the  inspection  of  the  goods  supplied. 
The  third  and  more  important  point  was  that  the 
returns  under  consideration  include  Baths,  Burial- 
Grounds  and  Wash-Houses,  and  that  these  services 
cannot  be  described  as  trades,  since  no  one  anti- 
cipates that  they  will  be  worked  at  a  profit. 
Results  obtained  from  these  returns  cannot,  there- 
fore, be  accepted  without  qualification  as  indicating 
the  profits  hkely  to  be  made  in  strictly  trading 
enterprises  undertaken  by  Local  Authorities.  If  it 
could  be  assumed  that  all  these  services  are  per- 
formed with  due  regard  for  economy,  an  assumption 
for  which  there  is,  I  fear,  no  warrant,  the  taxation 
necessary  to  make  up  the  net  losses  thus  incurred 
should  be  regarded  as  part  of  the  ordinary  civic 
expenditure  incurred  for  sanitary  purposes.  It  is, 
therefore,  perhaps  fair  that  Baths,  Wash-Houses,  and 
Burial-Grounds  should  be  struck  out  of  the  list  for 


272  PRICE  AND  QUALITY  [chap.  ix. 

the  purposes  of  this  discussion ;  an  omission  which 
raises  the  average  gross  profits  on  English  municipal 
trades  from  3  8  to  4  0  per  cent.  The  omitted 
services  are,  however,  those  which  show  the  greatest 
net  losses  of  any  included  in  the  returns,  and  in 
statistical  enquiries  there  is  always  a  certain  danger 
in  erasing,  on  any  pretence  whatever,  the  entries 
which  appear  at  one  end  only  of  a  series. 

(25)  Taking  3 '8  per  cent.,  however,  as  the  figure 
representing  the  gross  profit,  to  which  all  correc- 
tions, positive  and  negative,  should  be  applied,  the 
most  important  of  the  reasons  for  believing  that 
we  cannot  regard  it  as  being  an  indication  of  the 
gains  now  being  made  by  municipalities  in  conse- 
quence of  their  trading  enterprises,  is  that  there  is 
every  probability  that  large  rents  might  be  drawn 
from  private  companies  if  the  now  municipalised 
trades  were  handed  over  to  them  for  management. 
If  allowed  to  manage  municipal  tramways,  private 
companies  would,  it  is  certain,  be  willing  to  provide 
for  the  interest  and  repayments  of  principal  of  all 
the  capital  provided  by  the  Local  Authorities,  and 
in  addition  to  pay  heavy  rents  which  might,  in 
favourable  cases,  amount  to  as  much  as  2^  per  cent, 
on  the  capital ;  and,  as  many  other  services  could 
probably  also  in  the  same  way  be  leased  to  private 
proprietors  bound  to  carry  on  the  business  on  the 
same  lines  as  those  now  followed  by  the  Local 
Authorities  concerned,  it  follows  that  a  very  con- 
siderable sum  might  thus  be  made  to  fall  into  the 
municipal  treasuries.  This  simi  would  in  any  case 
be  available  for  the  relief  of  taxation,  and  it  should 
not,  therefore,  be  included  amongst  the  gains  made 
by   municipalities    in   consequence   of   their   trading 


CHAP.  IX.]        RELIABILITY   OF   STATISTICS  273 

enterprises ;  and  this  sum,  if  deducted  from  the 
3*8  per  cent,  gross  profits,  might  reduce  it  to 
3  per  cent.,  tlie  figure  arrived  at  by  a  iwiori 
reasoning  as  representing  the  probable  gains. 

(26)  This  deduction  for  possible  rents  is  probably 
the  most  important  allowance  necessary  in  order 
to  make  the  statistical  returns  of  remunerative 
undertakings  available  for  the  purposes  of  this 
discussion.  But,  assuming  that  this  correction 
could  be  made  with  accuracy,  would  the  figure 
representing  the  profit  as  thus  diminished  be 
trustworthy  as  representing  the  gain  ?  It  has 
been  stated  that  the  method  of  keeping  municipal 
accounts  is  open  to  criticism ;  and  an  examination 
of  the  statistics  of  municipal  gas-works  has  led  one 
careful  enquirer  to  conclusions  which  indicate 
that  the  gross  profits  shown  in  that  municipal 
trade  should  be  reduced  by  about  0*3  per  cent, 
on  this  account  alone.  The  omission  to  charge 
any  rent  for  the  use  of  public  offices,  or  an 
adequate  share  of  the  salaries  and  pensions  of 
officials,  or  the  full  cost  of  the  materials  used  in 
the  offices  and  in  the  manufactories  ;  the  method 
of  dealing  with  depreciation  ;  the  lowering  of  the 
rating  of  buildings  when  they  become  public 
property ;  and  the  omission  of  certain  items  of 
capital  expenditure  from  the  total  capital  pro- 
vided :  all  these  are  points  connected  with  muni- 
cipal accounts  which  have  been  brought  forward 
as  reasons  for  believing  that  the  true  gross  profit 
is  not  as  large  as  that  deduced  from  the  official 
returns.  INIoreover,  the  probable  arrest  in  the 
growth  of  the  popidation  in  futiu*e  makes  it  un- 
wise to  rely  implicitly  on  the  older  municipal  in- 
dustries  as  guides  for  the  future ;  and  certainly  the 

s 


274  PRICE  AND  QUALITY  [chap.  ix. 

older  municipal  gas-works  are  the  most  profitable. 
In  the  present  state  of  our  knowledge  it  is  impossible 
to  allow  for  these  omissions  and  errors,  and  thus 
to  correct  the  statistics  of  Municipal  Trade ;  but 
these  inaccuracies  must  not  be  forgotten  when 
considering  how  much  reliance  should  be  placed 
on   arguments   based    on   these  statistics. 

(27)  Thus  there  are  serious  reasons  for  doubting 
the  reliability  of  the  foregoing  enquiry  based  on 
the  Local  Government  Board  Returns.  On  the  one 
hand,  the  percentage  of  gross  profits  ought  prob- 
ably to  be  increased  to  somewhat  over  4  per  cent., 
the  most  important  error  being  due  to  the  capital 
being  taken  at  the  end  of  the  period  of  enquiry.  On 
the  other  hand,  there  are  numerous  and  weiglity 
reasons  for  believing  that  this  figure  must  be  con- 
siderably reduced  before  it  can  be  used  in  esti- 
mating the  effect  on  taxation  of  Municipal  Trade. 
If  these  corrections  in  reality  amount  to  somewhat 
over  1  per  cent.,  and  if  the  gross  profit  of  over 
4  per  cent,  should  thus  be  reduced  to  a  gross 
gain  of  3  per  cent,  then  our  a  -priori  reasoning 
and  our  enquiries  based  on  the  Local  Government 
Board  Returns,  would  coincide  as  to  results.  If  that 
were  the  end  of  our  enquiries,  both  methods  would 
indicate  that,  as  regards  finance,  w^e  are  not  gaining 
anything  whatever,  and  we  are  not  likely  to  gain 
anything  whatever,  as  the  direct  result  of  Municipal 
Trade.  Somewhat  over  one  per  cent,  does  not 
appear  to  me  to  be  an  improbably  large  correc- 
tion to  apply  to  the  gross  profits  on  account  of 
all  these  errors  and  deductions,  and  thus  our 
theoretical  conclusions  cannot  be  said  to  be 
refuted  by  an  examination  of  the  Local  Government 
Board  Returns. 


CHAP.  II.]  STATISTICS   AND  THEORY  275 

(28)  Possibly  the  divergence  between  the 
results  obtained  from  the  Returns  and  the  results 
which  a  'priori  reasoning  would  lead  us  to  antici- 
pate may  best  be  illustrated  in  the  following  manner. 
Judging  by  the  returns,  English  municipalities 
have  invested  in  round  numbers  £120,000,000 
in  undertakings  which  bring  them  in  a  gross 
profit  at  the  rate  of  3 '8  per  cent.  Of  the 
debts  and  liabilities  incurred  in  raising  this 
capital,  £20,000,000  has  been  paid  off  or  provided 
for,  and  £100,000,000  has  not  been  paid  off  The 
capital  of  £100,000,000  yields  at  the  above- 
mentioned  rate  a  return  of  about  £3,800,000  ;  but 
against  this  income  there  is  an  expenditure  on 
account  of  interest  and  repayments  of  principal  at 
the  rate  of  4*2  per  cent,  on  the  unredeemed  debts 
to  the  same  amount,  amounting  to  £4,200,000 ; 
thus  leaving  a  dejicit  of  £400,000  a  year.  As  to 
the  capital  of  £20,000,000,  which  has  no  correspond- 
ing debt  against  it,  this  yields  at  3*8  per  cent,  an 
income  of  £760,000,  against  which  there  are  no 
charges.  Out  of  this  income  of  £760,000,  £400,000 
has  to  be  taken  to  make  up  for  the  deficit  on 
the  investment  made  with  that  part  of  the  capital 
corresponding  to  the  unredeemed  debts ;  and  this 
leaves  a  clear  net  profit  of  £360,000  a  year.  Thus 
the  very  existence  of  this  net  profit  depends  on  the 
fact  that  part  of  the  debts  have  been  redeemed  ;  and 
this  net  profit  is  therefore  in  part,  at  all  events, 
interest  on  money  which  has  been  raised  by  taxa- 
tion which  would  not  otherwise  have  been  levied, 
and  which  has  been  invested  in  Municipal  Trade. 

(29)  But  this  net  profit  of  £360,000  un- 
doubtedly cannot  be  taken  as  representing  the 
amount   by  which   taxation   is   now   beuig   reduced 


276  PRICE  AND  QUALITY  [chap.  ix. 

because  of  these  undertakings ;  for  the  returns  on 
wliich  this  result  is  based  have  not  been  corrected 
or  modified  on  account  of  either  possible  rents 
or  any  defects  in  municipal  accounts.  According 
to  the  results  of  our  a  lyriori  reasoning,  we  should 
expect  the  return  on  the  capital  invested  to  be 
only  sufficient  to  cover  the  interest  on  the 
capital  borrowed  ;  that  is  to  say,  that  it  would  be 
somewhere  about  3  per  cent.  If  this  be  the  true 
view  of  the  case,  the  capital  of  £100,000,000 
and  its  corresponding  unredeemed  debts  are  bring- 
ing in  £3,000,000,  and  costing  £4,200,000.  thus 
leaving  an  annual  deficiency  of  £1,200,000.  On 
the  same  assumption,  the  £20,000,000  of  capital, 
with  no  corresponding  debt,  is  now  bringing  in  a 
clear  £600,000  a  year;  thus  reducing  the  deficit  on 
the  whole  to  £000,000  a  year.  If  this  really  repre- 
sents the  case  as  it  is,  this  £600,000  a  year  is  the 
amount  of  taxation  now  levied  in  England  which 
would  not  be  levied  but  for  these  municipal 
undertakings. 

(30)  Here  then  we  have  the  two  results  con- 
trasted ;  the  results  derived  from  an  examination  of 
the  Local  Government  Board  Returns  on  the 
supposition  that  they  need  no  correction  —  un- 
doubtedly a  false  assumption  —  and  the  results 
arrived  at  by  purely  a  priori  reasoning.  Another 
statistical  method  of  enquiry  was,  however,  con- 
sidered in  chapter  viii.,  namely  the  examination 
of  the  correlation  between  rates  and  remunerati\'e 
loans  in  English  towns;  a  method  which,  in  Miss 
Lee's  hands,  led  to  the  conclusion  that  taxation  has 
been  neither  materially  increased  nor  materially 
diminished  in  consequence  of  iNlunicipal  Trade,  a 
result,  that  is,  intermediate   between  the   two  fore- 


i 


CHAP.  IX.]         DIRECT   FINANCIAL   EFFECTS  277 

going  results.  But  neither  in  this  enquiry,  nor  in 
the  results  based  on  the  I>,ocal  Government  Board 
Returns,  was  any  account  taken  of  the  price  or 
quality  of  the  goods  sold,  whereas  the  figures  just 
quoted  as  illustrative  of  the  results  based  on  a  'prioi-i 
reasoning  were  given  on  the  assumption  that  the 
same  prices  are  charged  in  municipal  and  in  private 
trades.  Considering  the  great  difficulties  connected 
with  all  statistical  enquiries,  and  considering  the 
many  reasons  for  believing  that  the  results  based 
on  the  I^ocal  Government  Board  Returns  point  to 
unduly  hopeful  conclusions,  it  would  appear  that 
considerable  weight  should  be  attached  to  the  results 
of  theoretical  reasoning.  All  conclusions  based  on 
such  uncertain  and  contradictory  evidence  must  be 
given  with  hesitation,  and  it  can  only  be  said  that 
it  appears  probable  that  in  England  either  municipal 
taxation  or  the  price  of  the  goods  sold  by  I^ocal 
Authorities  is  now  somewhat  higher  than  would 
have  been  the  case  had  no  JNIunicipal  Trade  existed ; 
and  that,  merging  together  the  interests  of  the 
ratepayers  and  consumers  of  the  past,  present,  and 
future,  no  very  material  financial  benefit  or  injury 
will  be  felt  by  the  community  as  a  whole  as  tlie 
direct  result  of  existing  Municipal  Trade. 

(31)  I^ooking  to  the  future  it  can  hardly  be 
doubted  that,  when  the  existing  debts  are  redeemed, 
there  will  be  a  considerable  income  derived  from 
existing  municipal  trades  which  will  then  be  avail- 
able for  the  relief  of  taxation.  But  this  income 
will  be  either  in  part  or  altogether  the  interest 
on  money  raised  by  taxation  and  invested  in 
municipal  trades.  For  one  generation  to 
economise  and  invest  its  savings  for  the  benefit 
of   futurity    is    a    most    meritorious    act,   provided 


278  PRICE  AND  QUALITY  [chap.  ix. 

it  is  performed  knowingly.  Rut  the  fact  that 
the  creation  of  such  a  fund  out  of  additional 
taxation  raised  from  either  ratepayers  or  consumers 
is  beneficial  in  no  way  constitutes  an  argument  for 
Municipal  Trade ;  for  tlie  funds  thus  raised  might 
have  been  made  to  yield  the  same  return  by  being 
invested  in  other  ways ;  the  most  obvious  invest- 
ment, if  it  may  be  so  described,  being  the  repay- 
ment of  the  enormous  municipal  debts  now  existing. 
In  looking  to  the  future  it  must  also  be  remembered 
that,  even  if  it  could  be  proved  that  the  change 
from  private  trade  to  INIunicipal  Trade  has  been  a 
financial  benefit  to  the  community  as  a  whole,  it 
would  not  follow  that  the  same  beneficial  results 
would  be  obtained  from  municipal  enterprises 
initiated  in  future  ;  for  we  have  seen  that  there  are 
several  reasons  why  private  trade,  especially  if 
carried  on  under  a  reformed  method  of  control,  is 
likely  to  compare  with  INIunicipal  Trade  more 
favourably  in  the  future  than  in  the  past. 

(32)  During  the  whole  of  the  foregoing  dis- 
cussion on  municipal  finance  the  direct  effects  of 
Municipal  Trade  have  been  mainly  taken  into  con- 
sideration. It  is,  however,  possible,  and  indeed 
probable,  that  the  indirect  effects  are  considerably 
more  important ;  and  these  indirect  effects,  though 
far  more  difficult  to  estimate,  must  be  briefly 
discussed  before  any  attempt  is  made  to  draw 
general  conclusions. 

(33)  It  has  sometimes  been  asserted  that 
municipal  revenues  will  be  materially  increased  by 
these  indirect  financial  results  of  Municipal  Trade. 
INIunicipal  undertakings,  it  is  said,  especially  those 
facilitating  the  means  of  locomotion,  will  tend  to 
raise   the   value   of  property,  and   thus   to   increase 


CHAP.  IX.]  VALUE   OF   PROPERTY  279 

the  revenue  derived  from  rate.s  or  other  direct 
taxes.  To  this  contention  it  may,  in  the  first 
place,  be  repUed  that  if  the  construction  of  a 
tramway  tends  to  increase  the  demand  for  land  and 
houses  in  any  suburban  area,  and,  consequently,  to 
raise  the  value  of  property  in  that  locality,  it  must, 
at  the  same  time,  in  many  cases  tend  to  diminish 
the  demand  for  property  in  other  parts  of  the 
municipality,  and,  therefore,  to  that  extent,  to 
decrease  the  income  derived  from  the  rates.  But 
this  rejoinder  must  not  be  pushed  too  far;  for 
it  can  hardly  be  doubted  that  capital  suitably 
invested  in  facilitating  the  means  of  transport 
does  tend  to  increase  the  total  value  of  property 
in  the  whole  area  affected.  All  that  can  fairly  be 
said  on  this  head  is  that  it  may  not  do  so  to  such 
an  extent  as  would  at  first  sight  appear  probable. 

(34)  The  true  objection  to  the  foregoing  con- 
tention is,  however,  that  in  reality  it  begs  nearly 
the  whole  question.  If  tramways  and  works  of  a 
similar  character  are  extended  under  a  system  of 
private  trading  with  the  same  rapidity  as  they 
would  be  if  municipal  enterprise  were  prevalent, 
then  it  follows  that  the  substitution  of  municipal 
for  private  enterprise  will  have  no  effect  in  tending 
to  raise  the  total  value  of  property  in  urban 
districts.  For  municipal  enterprise  to  produce 
any  beneficial  results  in  this  way,  it  must  be 
undertaken  in  circumstances  or  in  localities  where 
private  enterprise  is  not  permitted  or  is  afraid  to 
enter.  If  the  more  rapid  extension  of  municipal 
enterprise,  which  is  tacitly  assumed  as  the  founda- 
tion for  this  argument,  is  due  to  restrictions  on 
private  enterprise,  then  this  fact,  if  it  be  one, 
would    serve    as    the    basis    for    an     argimient     in 


280  PRICE  AND  QUALITY  [chap.  ix. 

favour  of  tlie  removal  of  these  restrictions  rather 
than  in  favour  of  Municipal  Trade.  On  the  other 
hand,  if  the  assumed  more  rapid  progress  of 
Municipal  Trade  be  not  due  to  restrictions  on 
private  trade,  it  must  be  that  many  of  the 
enterprises  undertaken  by  public  bodies  are  not 
sufficiently  encouraging  as  regards  probable  profits 
to  attract  private  capital.^  But  if  so,  it  follows 
that  the  capital  which  is  drawn  from  the  money 
market  by  means  of  loans  raised  for  such  un- 
attractive municipal  enterprises,  would,  on  the 
average,  have  been  more  profitably  used  elsewhere 
if  it  had  not  been  thus  employed ;  that  is  to 
say,  that  it  would  have  produced  more  wealth 
when  invested  in  private  undertakings,  as  would 
generally  have  been  the  case.  This  con- 
clusion cannot  be  denied  if  it  be  admitted,  as 
it  fairly  may  be,  that  town  councillors  are 
not  likely  to  be  better  judges  of  commercial 
risks  than  the  proprietors  of  private  ventures ; 
for  in  that  case  it  follows  that  private  enterprises 
will,  on  the  average,  be  more  profitable  than  those 
municipal  enterprises  undertaken  under  conditions 
not  sufficiently  encouraging  to  attract  private 
capital.  And  if  the  total  production  of  wealth 
would  be  greater  if  the  selection  of  the  uses  to 
which  capital  is  to  be  applied  was  always  left  at 
the  discretion  of  private  proprietors,  it  follows  that 
the  total  value  of  property,  and  consequently  the 
total  amount  raised  by  direct  taxation,  would 
be  greatest  in  these  circumstances.  Thus  granted 
for  the  sake  of  argument  that  municipalities 
develop  certain  localities  more  quickly  than 
private      traders,     this      result      may     be      caused 

'  M.T.R.,  Q.  2113. 


CHAP.  IX.]     INDIRECT   EFFECTS   ON   REVENUE  281 

by  undue  restrictions  on  private  trade  ;  and,  where  it 
is  not  thus  caused,  the  total  revenue  from  taxation 
of  the  whole  country  will  be  decreased  rather  than 
increased  by  this  more  rapid  development. 

(35)  But  the  truth  is  that  municipal  enterprise 
is  on  the  average  less  progressive  than  private  trade. 
Very  few  facts  can  be  brought  forward  in  support 
of  a  belief  in  the  superior  energy  or  rashness, 
whichever  it  should  be  called,  of  public  bodies ; 
and  experience  shows  that  the  most  progressive 
nations  have  always  been  those  which  have  trusted 
most  to  individual  efforts.  All  such  rules  are 
subject  to  exceptions  in  individual  cases ;  but, 
if  this  conclusion  be  accepted  as  a  general  law, 
the  foregoing  argument,  if  used  in  favour  of 
a  general  adoption  of  mimicipal  enterprise,  en- 
tirely falls  to  the  ground ;  for  so  long  as  progress 
and  private  initiative  are  linked  together,  so  long 
will  the  adoption  of  an  extensive  policy  of  muni- 
cipalisation  tend  to  decrease  the  value  of  property 
of  all  kinds  and,  consequently,  the  sources  of  both 
direct  and  indirect  taxation.  Thus  the  question 
whether  public  or  private  trading  is  the  more 
progressive  is  a  very  important  one  in  this  financial 
discussion.  For,  if  it  be  a  fact,  as  I  believe  it  to 
be,  that  private  trade  advances  the  more  rapidly 
of  the  two,  then  the  mere  statistical  proof  that 
a  net  profit  had  been  made  by  municipal  enterprise 
would  not  be  sufiicient  to  prove  that  taxation  had 
been  reduced  thereby  ;  for  the  profit  thus  made  might 
have  been  swamped  by  the  effect  of  the  less  rapid 
increase  of  the  taxable  value  of  private  property. 

(3G)  It  should  also  be  remarked  that  it  would 
be  the  private  owners  of  property  rather  than  the 
general  public  who  would,  in  existing  circumstances, 


282  PRICE  AND  QUALITY  [chap.  ix. 

be  the  chief  gainers  from  any  public  expendi- 
ture which  raised  the  value  of  property.  To 
advocate  the  expenditure,  or  even  the  risking  of 
public  money,  with  the  avowed  object  of  raising 
the  value  of  property  therefore  opens  out  a  wide 
field  for  jobbery.  It  may,  of  course,  be  said  that 
some  means  of  diverting  the  whole  of  this  unearned 
increment  into  the  public  purse  should  be  adopted. 
But  until  this  has  actually  been  accomplished,  all 
arguments  in  favour  of  municipalisation,  based  on  the 
indirect  effects  of  public  expenditure  on  the  revenue, 
are  both  weak  and  dangerous. 

(37)  ^Vnother  financial  objection  to  municipal 
trading  is,  as  already  remarked,  that  it  tends  to 
produce  extravagance  in  municipal  affairs ;  an 
objection  the  full  discussion  of  which  is  beyond 
the  scope  of  this  volume.  It  has  been  said  that 
if  London  were  to  go  in  for  all  the  municipal 
enterprises  undertaken  by  Huddersfield,  for 
example,  the  result  would  be  "to  increase  its 
"  debt  at  once  by  the  gigantic  sum  of  nearly 
"  £200,000,000,  or  nearly  one-third  of  the  National 
"  Debt."  '  Municipal  debts  may,  tlierefore,  be  largely 
increased  in  future  as  the  result  of  Municipal 
Trade ;  and  a  given  sum  of  money,  if  borrowed 
after  any  such  great  increase  in  the  debt  of  a 
municipality,  would  bear  a  materially  smaller  pro- 
portion to  the  total  debt  than  would  be  the 
case  if  it  were  borrowed  at  present ;  and  the  loan 
would  therefore  appear  to  be  a  less  important 
matter.  ^Vny  opposition  to  new  loans  will  probably, 
therefore,  be  weakened  by  any  wide  extension  of 
iSIunicipal  Trade.  Pubhc  bodies,  like  individuals, 
easily   drift    into    bad   habits ;    and    if    the    habit   of 

M.T.R.,  Q.  2606,  Mr  D.  H.  Davies. 


CHAP.  IX.]       CONCLUSIONS   AS   TO   FINANCE  283 

raising  money  by  loan  with  little  regard  to  the 
total  indebtedness  of  the  municipality  is  acquired, 
the  expenditure  for  non-remunerative  as  well  as  for 
remunerative  works  is  certain  to  increase. 

(38)  The  final  result  of  this  long  discussion  is 
to  make  it  probable  that,  as  compared  with  pri\'ate 
trade  under  proper  control,  the  direct  result  of 
Municipal  Trade  is  likely  to  be  that  one  generation 
will  be  taxed  for  the  benefit  of  future  generations ; 
and,  merging  together  the  interests  of  existing  and 
future  citizens,  that  the  net  result  to  the  nation 
will  be  neither  a  considerable  financial  loss  nor 
a  considerable  financial  gain.  As  regards  the  iii- 
dir'eet  results  of  JNIunicipal  Trade,  it  appears  that, 
if  it  were  to  be  much  more  extensively  practised, 
the  check  thus  produced  on  the  growth  of  wealth, 
and  the  tendency  to  extravagance  thus  created, 
would  cause  a  material  diminution  both  in  the 
national  wealth  and  in  the  national  and  municipal 
revenues.  From  this  we  may  at  least  conclude 
that,  tliough  great  pecuniary  sacrifices  are  some- 
times justifiable  for  public  purposes,  it  is  most 
unwise  to  allow  the  hope  either  of  making  a 
profit,  or  of  producing  a  corresponding  reduction  in 
prices,  to  influence  our  decisions  as  to  wliether  any 
industry  should  be  numicipahsed  or  not.  The  ques- 
tion whether  it  would  be  for  the  general  good  that  a 
public  body  sliould  undertake  the  management  of 
any  trade  should,  therefore,  in  the  first  place,  be 
considered  solely  with  reference  to  such  questions 
as  public  morality,  health,  and  convenience ;  and  it 
is  only  when  a  decision  has  been  provisionally 
given  in  the  affirmative  tliat  financial  considera- 
tions should  be  allowed  to  weigh  in  the  balance 
before  a  final  judgment  is  made. 


X 

COMPETITION    AND    PROTECTION 

(1)  Mankind,  it  is  urged,  is  on  the  whole  bene- 
fited by  a  free  competitive  struggle  between 
different  industrial  enterprises,  and  municipalisation 
will  produce  harmful  results  by  lessening  this 
struggle.  This  is  the  argument  about  to  be 
examined ;  and,  in  so  doing,  it  must  be  re- 
membered that  those  who  accept  this  general  con- 
clusion need  not  necessarily  condemn  the  public 
management  of  all  industries.  It  is  merely  the 
addition,  in  each  case,  of  an  extra  weight,  great 
or  small  as  the  case  may  be,  on  the  adverse  side 
of  the  scales  before  making  the  final  test. 

(2)  Those  who  affirm  that  the  results  of  in- 
dustrial competition  are  on  the  whole  bad  as  com- 
pared with  the  results  which  might  be  obtained 
by  the  introduction  of  some  other  practicable 
system  are  in  fact  pronounced  Socialists ;  and 
to  consider  whether  they  are  right  or  wrong  in 
their  conclusions  would  necessitate  the  considera- 
tion of  the  whole  question  of  Socialism.  Such 
a  controversy  would  be  beyond  the  scope  of  this 
volume ;  and,  although  most  of  this  discussion  has 
a  direct  bearing  on  the  questions  of  Socialism,  yet 
it  must  be  considered  to  be  mainly  addressed  to 
those  readers  who  do   not   admit   the   practicability 

284 


cHAP.x.]      ADVANTAGES   OF   COMPETITION  285 

of  any  great  or  sudden  socialistic  revolution,  but 
who  are,  nevertheless,  anxious  to  consider  every 
socialistic  proposal  separately  on  its  own  merits. 

(3)  Here,  therefore,  it  is  unnecessary  to  do 
more  than  briefly  summarise  the  advantages  and 
disadvantages  resulting  from  the  struggle  which 
inevitably  accompanies  our  modern  industrial 
system.  Free  competition  has  the  effect  of  placing 
goods  and  services  where  they  are  most  wanted 
with  greater  certainty  than  is  possible  with  any 
other  system ;  it  best  insures  that  the  goods 
supplied  are  of  the  kind  wanted ;  and  it  keeps 
down  prices  more  effectually  than  any  legal  enact- 
ments, thus  widely  distributing  the  benefits  of 
industrial  progress.^  Many  of  the  arguments  in 
favour  of  free  competition  are  similar  to  those 
urged  in  favour  of  free  trade ;  for  both  the  curb- 
ing of  competition  and  the  levying  of  an  import 
duty  may  have  the  effect  of  keeping  alive  an 
industry  which  free  trade,  in  the  widest  sense  of 
the  word,  would  kill  by  the  introduction  or 
manufacture  of  cheaper  or  better  goods.  The 
world  at  large  is  injured  by  high  prices  being 
sustained  in  either  of  these  ways,  especially 
when  high  prices  have  not  even  the  merit  of 
producing  greater  profits,  and  are  simply  the 
result  of  the  survival  of  obsolete  or  wasteful 
methods  of  production.  But  probably  the  most 
important  of  the  many  reasons  why  our  competi- 
tive system  is,  on  the  whole,  beneficial  is  that 
under  it  the  fittest  win  their  way  to  the  front 
more  surely  than  is  possible  under  a  more  cen- 
tralised   system ;    and    the    progress    of    the    world 

1  "  Economics,"  Hadley,  p.  397. 


286  COMPETITION  AND  PROTECTION      [chap.  x. 

depends  mainly  on  the  fitness  of  those  who  are  to 
be  found  in  the  leading  ranks.  "'  The  industrial 
"  success  of  this  country,  wliether  it  be  nianu- 
"  facturing  or  commercial,  has  been  attained  by 
"  individual  energy  impelled  by  the  motive  of 
"individual  ambition  and  profit."^  To  prove  that 
a  socialistic  reform  would  do  immediate  good 
would  not  disprove  that  the  total  effect  would  be 
evil ;  for  free  initiative  and  progress  have  ever 
gone  hand  in  hand. 

(4)  Few  are  now  blind  to  the  evils  of  the 
existing  system.  The  fittest  w^inning  in  the  race 
often  means  the  degradation  of  the  weakest ;  and 
the  struggle  is  a  cruel  one.  JNIuch  of  the  labour 
of  mankind  does  nothing  but  harm ;  and  even 
the  harmless  efforts,  such,  for  example,  as  the 
reasonable  display  of  advertisements,  which  do  not 
actually  tend  to  produce  useful  things,  but  which 
necessarily  accompany  our  industrial  system,  repre- 
sent an  appalling  waste  of  human  energy.  15ut, 
even  if  we  freely  admit  the  cruelty  and  waste- 
fulness of  modern  industrial  life,  we  shall  not 
necessarily  be  illogical  if  we  firmly  hold  to  the 
belief  that  no  socialistic  system  yet  proposed  could 
be  introduced  with  advantage.  AW.  that  can  be 
done  is  to  try  to  mitigate  the  evils  of  competition 
without  unduly  checking  the  progress  of  the 
world. 

(5)  The  industries  most  commonly  municipalised 
are  generally  described  as  monopolies,  and  it  may 
be  lU'ged  that,  where  from  any  cause  whatever 
an    industry    has    become    a    complete    monopoly, 

^  Journal  of  the  Roijal   Statistical  Soc,    Sir   J.    Henry    Fowler,    M.P., 
September  1900,  p.  393. 


CHAP.  X.]  INDIRECT   COMPETITION  287 

the  resulting  evils  cannot  be  increased  by  its 
being  purchased  by  a  public  body.  Competition 
is  practically  impossible  in  the  case  of  the  supply 
of  water  for  domestic  purposes  in  developed 
districts ;  for  no  substitute  for  water  exists,  and 
it  has  been  found  impracticable  to  establish  rival 
enterprises  in  the  same  area.  But  can  this  be 
said  of  any  other  municipal  undertaking  ?  Municipal 
tramways,  not  to  mention  their  competition  with 
the  use  of  human  legs,  are  now  run  in  competition 
with  omnibuses ;  and  they  may  in  future  have  to 
compete  with  motor  cars.  Municipal  gas-works 
frequently  compete  with  private  electrical  works, 
and,  to  a  certain  extent,  with  oil  lamps  for  light- 
ing. INIunicipal  electrical  works  compete  with 
hydraulic  works  for  the  supply  of  power.  In 
other  municipal  enterprises  the  competition  is 
more  obvious  ;  and  I  know  of  no  instance,  except 
the  supply  of  water  for  domestic  purposes  in 
developed  districts,  where  it  is  altogether  absent. 

(6)  Competition  means  an  effort  and  a  stiiiggle, 
and  all  competitors  are  under  a  strong  temptation 
to  protect  themselves  as  well  as  they  can.  The 
difference  between  municipal  and  private  traders 
is  not  that  they  are  actuated  by  different  motives ; 
for  both  will  always  seek  protection.  Municipalities 
have,  however,  in  many  ways,  greater  powers  and 
opportunities  than  private  traders  of  cliecking  com- 
petition, and  they  will  take  advantage  of  them 
exactly  as  private  traders  would  do  were  they 
able.  They  can  more  easily  buy  up  their  rivals, 
and  thus  amalgamate  two  competitive  businesses ; 
they  have  peculiar  advantages  because  of  their  great 
resources   in   attempting    to    crush    or    to    frighten 


288  COMPETITION  AND  PROTECTION      [chap  x. 

away  their  opponents ;  and  they  can  use  their  ad- 
ministrative powers  to  protect  themselves.  Except 
in  the  case  of  water  supply,  municipal  enterprise 
will  always  tend  in  one  of  these  ways  to  produce 
some  injurious  results  by  limiting  competition. 

(7)  The  commonest  instance  of  competition 
being  checked  by  the  purchase  of  rival  industries 
by  the  same  municipality  occurs  when  a  public  body 
managing  gas-works  also  buys  up  electric  lighting 
works.  Where  this  takes  place,  an  end  is  put  to 
effective  competition ;  for,  if  electricity  is  manufac- 
tured as  an  adjunct  to  gas,  the  municipality,  instead 
of  "  offering  it  and  urging  it,"  will  only  supply 
it  where  it  is  asked  for.^  The  fact  of  owning  the 
gas  monopoly  may,  it  is  true,  make  it  more  likely 
that  a  "  city  could  manage  electrical  works  in  con- 
" junction  without  much  financial  risk  or  danger"; 
but  this  absence  of  risk  will  assuredly  be  accom- 
panied by  a  retardation  in  the  rate  of  progress.^ 
There  may  be  rivalry  between  the  committees 
managing  the  two  enterprises,  or  between  different 
Town  Councils ;  but,  as  a  stimulus  to  trade,  rivalry 
is  far  less  effective  than  the  true  competition  arising 
from  the  desire  of  proprietors  for  increased  profits. 
Had  both  these  methods  of  illumination  been 
universally  under  public  management,  it  is  very 
doubtful  if  the  experiments  in  incandescent  gas 
would  have  been  pushed  with  the  same  vigour  as 
has  actually  been  displayed  by  the  private  companies 
concerned ;  less  progress  would  have  been  made ; 
and  the  public  would,  in  this  way,  have  suffered 
from  the  check  on  competition  resulting   from  the 

1  M.T.R.,  Q.  2731,  Mr  S.  Chisholm. 

'^  "  Municipal  Government  in  Continental  Europe,"  Shaw,  p.  325. 


CHAP.  X.]      HINDRANCES   TO   PRIVATE   TRADE        289 

two  industries  being  municipalised.  Competition 
would  be  checked  in  a  similar  manner  if  both  these 
industries  in  any  locality  were  managed  by  one 
private  company ;  but,  as  far  as  I  know,  this 
never   occurs. 

(8)  The  check  on  competition  due  to  different 
enterprises  being  placed  under  one  management 
would  become  very  serious  if  ever  the  field  of 
municipal  enterprise  were  much  more  widely 
extended.  At  the  present  time,  however,  more 
harmful  results  arise  from  the  use  made  by  muni- 
cipalities of  their  various  powers  in  order  to  hinder 
private  traders  from  competing  against  industries 
which  {tre  now  or  which  may  possibly  in  the  future 
be  placed  under  public  management.  As  already 
remarked,  all  traders,  whether  private  or  public, 
desire  protection ;  but  municipal  bodies  can  base 
their  demands  for  it  on  pleas  which  private  traders 
cannot  use.  "  Having  spent  the  ratepayers'  money 
"on  laying  down  expensive  plant,"  municipalities 
"claim  that  it  is  against  all  municipal  practice  to 
"  allow  competition  from  private  companies " ;  and 
it  is  said  that  Local  Authorities  have  been 
encouraged  and  assisted  by  Parliament  in  borrow- 
ing large  sums  of  money  for  electric  lighting 
undertakings  "  on  the  understanding  that  there 
"  should  be  no  competition."  ^  It  may  be  doubted 
whether  any  Parliamentary  understanding  exists ; 
but  it  can  hardly  be  denied  that  there  is  some 
force  in  these  arguments.  The  INIunicipal  Corpora- 
tions Association,  a  powerful  body  capable  of  in- 
fluencing many  Members  of  Parliament,  has  even 
gone  so   far   as   to   affirm  definitely  "  the   principle 

^  M.T.R.,  Q.  848. 


290  COMPETITION  AND  PROTECTION      [chai-.  x. 

"that  where  Local  Authorities  liave,  with  the 
"sanction  of  Parhament,  estabhshed,  or,  are  in  the 
"course  of  estabhshing,  undertakings  for  pubHc 
"benefit,  and  have  not  failed  in  their  duties,  it  is 
"not  right  or  expedient  that  powers  should  be 
"  granted  to  companies  to  compete  with  them "  ; 
and  the  ad\'ocates  of  Municipal  Trade  are  able  to 
influence  Parliament  through  the  agency  of  such 
associations  in  their  endeavours  to  obtain  protec- 
tion for  industries  under  public  management  more 
effectively  than  private  traders  can  do  with  the 
means  at  their  disposal.  Municipal  Trade  is,  there- 
fore, more  protected  than  private  trade ;  though 
the  evils  arising  from  the  resulting  limitittion  of 
competition  are  not  one  whit  less  serious  in  tlie 
one  case  than  in  the  other. 

(9)  The  direct  effects  produced  by  the  opposi- 
tion of  municipalities  can,  perhaps,  best  be  seen  in 
the  case  of  electric  lighting.  Before  private  traders 
can  get  the  Provisional  Orders  which  are  necessary 
to  enable  them  to  supply  electricity  in  any  district, 
the  consent  of  the  Board  of  Trade  must  be  obtained  ; 
and,  although  the  Board  of  Trade  can  dispense 
with  the  consent  of  any  I^ocal  Authority,  tliey 
hardly  ever  do  so.  JNIunicipalities  can,  therefore, 
as  a  rule,  effectively  oppose  tlie  granting  of  these 
Orders,  and,  when  there  are  municipal  gas-works 
in  the  district,  this  opposition  is  often  forthcoming, 
the  refusal  to  give  consent  being  sometimes  avowedly 
grounded  by  the  Local  Authority  on  "the  very 
"  large  amounts  which  they  have  expended  on  their 
"  gas  undertaking."  ^  JNloreover,  where  there  is  no 
thought  of  protecting  gas-works,  Local  Authorities 

'  M.T.R.,  Q.  1670. 


I 


CHAP. 


x]      HINDRAxNCES   TO   PRIVATE   TRADE        291 


often  appear  to  consider  that  they  may  want  to 
undertake  the  electric  Hghting  themselves  at  some 
future  date,  and,  with  this  possibility  in  view,  they 
oppose  private  companies  "in  all  sorts  of  ways." 
Opposition  of  this  character,  it  is  said,  has  "  very 
"  seriously  retarded  the  progi'ess  of  electric  lighting," 
many  places  having  been  for  years  without  it 
where  otherwise  it  would  have  been  available.^ 

(10)  Another  possible  method  of  safeguarding 
municipal  gas-works  fi-om  competition  is  for  a  Local 
Authority  to  obtain  a  Provisional  Order  imder 
which  municipal  electric  lighting  works  could  be 
established,  and,  having  obtained  these  powers,  to 
let  them  remain  unused.  This  would  certainly 
prevent  private  companies  from  entering  the  field 
for  some  time,  and  might  keep  them  out  for  many 
years.  In  thirty-seven  localities  in  Great  Britain 
and  Ireland,  where  Provisional  Orders  had  been 
granted  before  1896,  no  electrical  supply  was  avail- 
able at  the  beginning  of  1900 ;  and  it  is  difficult 
to  resist  the  conclusion  that  a  few  of  these  Orders 
were  taken  out  merely  with  the  view  of  protecting 
the  Municipal  Gas-AA^orks  from  competition,^  and 
many  with  the  idea  of  keeping  the  ground  clear  in 
case  the  Local  Authorities  should  in  future  wish  to 
do  the  work  themselves. 

(11)  In  many  cases,  private  companies  desiring 
to  undertake  various  enterprises  are  either  obliged 
or  think  it  expedient  to  endeavour  to  obtain  a 
Private  Act  of  Parliament  granting  the  necessary 
powers ;  and  in  such  cases  Local  Authorities  ha\'e 
excellent   opportunities   during   the   progress  of  the 

1  M.T.R.,  Q.  795,  Mr  Sydney  Morse.     See  also  Qs.  1361  and  1556. 

2  Ibid.,  Qs.  1556,  1310,  and  pp.  465,  466. 


292  COMrETlTION  AND  PROTECTION      [chap.  x. 

bills  of  endeavouring  to  avoid  the  proposed  private 
competition.  The  delay  caused  to  various  projects 
for  the  distribution  of  power  by  electricity  may  be 
mentioned  as  an  illustration  of  the  obstruction  to 
industrial  progress  thus  rendered  possible.  In  1897 
and  1898  certain  bills  were  deposited  with  the  view 
of  enabling  private  companies  to  erect  central 
generating  stations  for  the  supply  of  electricity, 
from  which  it  was  to  be  distributed  over  wide  areas 
chiefly  for  motive  power.  It  was  believed  that  in 
this  way  certain  decaying  industries  in  small  towns 
and  villages  might  be  revived ;  and  several  Local 
Authorities  were  consequently  favourably  disposed 
towards  the  project.  But  an  organised  opposition, 
originating  with  persons  connected  with  the  large 
cities  within  the  area  of  distribution,  succeeded  at  all 
events  in  delaying  the  progress  of  this  movement, 
thus  causing  a  considerable  loss  to  the  promoters 
and  discouraging  similar  enterprises.  JNIuch  of  the 
opposition  in  this,  and  in  other  instances  which 
might  be  quoted,  was  probably  based  on  rational 
grounds ;  but  in  many  cases  the  Local  Authori- 
ties appear  to  have  allowed  their  zeal  as  possible 
future  manufacturers  to  outweigh  their  discretion  as 
representatives  of  all  classes  inhabiting  the  localities 
concerned.^ 

(12)  It  is  only  when  competition  is  conducted 
on  even  terms  that  the  best  results  are  obtained ; 
for,  if  the  contest  is  uneven,  the  fittest  may  not 
survive.     Both   the    administrative   powers   and    the 


1    u 


'  Report  Electric  Energy  (Generating  Stations  and  Supply),"  House 
of  Commons,  213, 1898  ;  "Traction  and  Transmission,"  April  1902,  p.  241  ; 
M.T.R.,  Qs.  526  and  2590.  As  to  Mond  Gas  Bill,  see  "Traction  and 
*'  Transmission,"  December  1901,  p.  225,  and  January  1902,  p.  21  ; 
Times,  5tli  September  1902. 


CHAP,  x]       COMPETITION   ON   EVEN  TERMS  293 

great  resources    of    municipalities   give   them   great 
advantages  over  private  traders  ;   and   their   success, 
where  there  is  competition,  is  not  therefore  a  proof 
of    the   superior   quahty   of    the    work    performed. 
Some  engineers  beheve  that  tramways  will  be  wholly 
or   partially  superseded  by  motor  cars,  and  that,  to 
accommodate  this  traffic,  the  roadway  should  be  as 
smooth   as    possible.     Should    this    prophecy   prove 
to   be   true,  those   municipalities   owning   tramways 
may  lose  revenue  by  this  competition,  and  they  will 
therefore  be  tempted  not  to  hurry  on  the  necessary 
changes  in  the  roadways  ;  whereas  in  localities  where 
private  companies  are  the  owners  of  the  tramways, 
no   such  temptation  would   exist,  and  the  improve- 
ments  of  roads    would   probably   be    more   rapidly 
effected  to  the  real  advantage  of  the  public.^     Where 
municipaUties   control   the   police,   and   are   in   con- 
sequence   ultimately   responsible   for   the  regulation 
of  the  traffic,  it  is  not  impossible  that  these  powers 
may  be  used  to  favour  municipal  tramways  in  their 
competition   with    omnibuses,     even    if    it    is    not 
deliberately  intended  thus  to  make  the  competition 
uneven.     It  is   the  rule  now  for  Local  Authorities 
working  tramways  to  take  powers  in  their  bye- laws 
to  carry  a  certain   number   of  passengers   in   emer- 
gencies in  excess  of  the  interior  seating  accommoda- 
tion ;    a  practice  which  their  police  would  probably 
prevent   if  attempted    by   competing   omnibus    pro- 
prietors.    To   obtain  further   evidence  of  the   effect 
of  the  advantage  possessed  by  municipalities,  we  have 
merely   to   turn   to  the  Report  of  the  Joint  Com- 
mittee on  JNIunicipal  Trading.     The  Corporation  of 
Dublin,   for   example,  is   said  to  have  obstructed  a 

i  M.T.R.,  Q.  1318. 


294  COMPETITION  AND  PROTECTION      [chap.  x. 

private  electric  tramway  company  to  such  an 
extent  as  to  induce  them  to  agree  "not  to  supply 
"  electricity  to  anybody  without  the  consent  of 
"  the  Corporation,"  thus  safeguarding  the  municipal 
electric  lighting  works  from  competition.^  Glasgow 
is  said  to  have  obstructed  a  private  telephone 
system  by  refusing  to  grant  facilities  with  reference 
to  way-leaves  "  which  would  have  enabled  improve- 
"  ments  to  be  made."  2  And,  as  an  example  of 
the  way  in  which  the  great  riches  at  the  disposal 
of  municipalities  affect  competition,  the  case  of  the 
Glasgow  cross-river  traffic  may  be  mentioned.  A 
private  company  introduced  a  Bill  to  enable  them 
to  construct  a  tunnel  under  the  river,  and  the 
Corporation,  having  failed  in  their  Parliamentary 
opposition,  started  a  horse  ferry  at  fares  "  reduced 
"to  the  vanishing  point,"  with  the  object,  it  is 
said,  of  crippling  and  crushing  out  the  company.^ 
There  may  have  been  other  grounds  than  those 
mentioned  for  the  action  of  the  above-mentioned 
municipalities ;  but,  even  if  the  circumstances  to 
be  considered  in  each  case  have  not  all  here  been 
mentioned,  these  instances  prove  that  Local 
Authorities  have  powers  which  give  them  great 
advantages  in  any  competition  with  private  traders, 
but  which  in  no  way  affect  the  quality  of  the 
goods  or  services  sut  plied. 

(13)  Thus  it  i  certain  that  harmful  results 
have  actually  arisen  from  the  opposition  of  muni- 
cipalities to  private  competition.  But  it  must 
be    remembered    that    the    indirect    and    invisible 

1  M.T.R.,  Q.  1444,  Mr  W.  M.  Murphy. 

2  Ibid.,  Qs.  3471,  4045,  and  4368. 
'  Hid.,  Q.  3444,  Mr  James  Kelly. 


CHAP,  x]  FEAR   OF   OPPOSITION  295 

effects  are  often  the  most  important.  A  consider- 
able amount  of  labour  and  some  expenditure 
are  necessary  before  the  promoters  of  private 
enterprises  are  even  in  a  position  to  ascertain 
whether  a  municipality  will  or  will  not  consent 
to  the  issue  of  a  Provisional  Order.  Still  more 
money  has  to  be  expended  before  it  can  be 
ascertained  what  amount  of  opposition  will  be 
offered  to  a  Private  Bill  in  Parliament ;  and  any 
opposition  that  is  offered,  even  if  unsuccessful, 
will  greatly  increase  the  cost  of  such  undertakings. 
The  stronger  the  desire  for  Municipal  Trade  in 
any  district,  the  more  probable  it  is  that  private 
enterprises,  requiring  Bills  or  Orders,  will  be 
opposed ;  and  the  more  probable  is  this  opposition, 
the  less  likely  is  it  that  promoters  will  be  willing 
to  risk  all  this  preliminary  labour  and  expenditure 
without  which  nothing  whatever  can  be  done.  It 
is  almost  impossible  to  form  an  estimate  of  the 
ultimate  effects  thus  produced ;  but  it  appears  to 
me  probable  that  the  influence  of  these  invisible 
checks  on  industrial  progress  due  to  the  fear  of 
municipal  opposition  is  considerable. 

(14)  It  has  also  been  urged  with  great  force 
that  the  check  on  trade  arising  from  municipal 
opposition  has  another  extremely  important  in- 
directly injurious  effect.  It  cannot  be  denied  that 
EngUsh  towns  are  far  behind  the  times  as  compared 
with  several  other  countries  in  the  matter  of 
electric  lighting  and  electric  tramways ;  and  one  of 
the  indirect  results  of  this  backwardness  is  said  to 
have  been  that  the  manufacture  of  certain  electrical 
fittings  has  been  almost  driven  out  of  the  country. 
It    is    urged  *hat    electricity  is    far   more    used   in 


296  COMPETITION  AND  PROTECTION      [chap.  x. 

the  United  States  than  it  is  with  us,  because  it 
has  not  been  obstructed  in  that  country  by 
municipal  opposition ;  and,  as  trade  is  generally 
most  successful  where  it  has  the  advantages  of  a 
first  start,  and  where  its  volume  is  greatest,  English 
manufacturers  have  been  in  consequence  worsted, 
so  it  is  said,  in  their  contest  with  their  American 
competitors.  Other  circumstances  have  probably 
helped  to  produce  this  result ;  but  the  fact  that 
"  a  very  large  proportion  of  the  electrical  apparatus 
"  is  now  being  imported  from  America  "  does  appear 
to  be  largely  due  to  the  opposition  which  electrical 
tramways  and  electrical  lighting  have  received 
from  the  municipalities  of  the  United  Kingdom.^ 

(15)  Thus  any  limitation  of  competition  may 
produce  both  beneficial  and  harmful  results,  the 
net  result  being,  generally  speaking,  very  harmful. 
Some  competition  is  possible  even  with  trades 
which  are  usually  described  as  monopolies,  because 
other  commodities  can  be  used  in  substitution  for 
the  commodity  supplied ;  the  sole  exception 
probably  being  water.  Both  public  and  private 
traders  will  seek  protection  against  competition ; 
but  municipalities  will  be  more  successful  than 
private  companies  in  their  endeavours  to  shelter 
themselves.  Local  Authorities  can  defend  them- 
selves against  would-be  rivals  by  opposing  bills 
in  Parliament,  by  refusing  consent  to  Provisional 
Orders,  or  by  obtaining  such  Orders  with  or 
without  the  intention  of  using  them ;  and  they 
may  be  able  to  stop  actual  competition  by  buying 
out  established  competitors.  Even  the  possibility 
of  any   such    proceedings    on    the    part   of    public 

1  M.T.R.,  Qs.  1180  (Mr  Emile  Garck^),  1305,  1450,  and  875. 


cHAP.x.]  COMPETITIVE   TRADES  297 

bodies  produces  a  deterrent  effect  on  enterprise ;  an 
effect  which  is  not  confined  to  the  trades  primarily 
affected.  In  fact,  of  all  the  services  usually  muni- 
cipalised which  may  truly  be  described  as  trades, 
domestic  water  supply  is  the  only  one  in  which 
the  monopoly  is  so  complete  that  no  harm  what- 
ever can  be  done  as  regards  the  limitation  of 
competition  by  municipalisation. 

(16)  In  considering  the  influence  of  com- 
petition, we  have  thus  far  been  discussing  the 
direct  and  indirect  effects  of  the  municipalisation  of 
trades  tending  to  become  monopolies.  INIunicipal 
Trade  appears,  however,  less  and  less  likely  to  be 
confined  within  these  bounds.  The  management 
of  a  monopoly  such  as  the  supply  of  gas  by  a 
municipality,  necessitates  even  at  the  present  time 
a  certain  amount  of  competition  in  the  sale  of 
coke  and  of  other  residuals ;  but  when,  as  at 
Sheffield,  powers  are  obtained  for  the  manufacture 
of  electrical  fittings,  no  necessity  can  be  pleaded 
for  thus  entering  directly  into  competitive  trade. ^ 
But  it  is  rather  with  regard  to  future  possibilities 
that  the  study  of  all  questions  connected  with  the 
municipalisation  of  competitive  industries  is  an 
urgent  necessity ;  for  public  bodies  have  already 
asked  for  powers  to  undertake  the  manufacture 
of  electric  dynamos,  saddlery,  coal  supply,  and 
pawnbroking,  etc. ;  and  these  demands  must  be 
regarded  as  true  guides  to  the  direction  in  which 
public  opinion  is  drifting  at  present.- 

(17)  As  already  remarked,  all  traders   seek   pro- 

1  M.T.R.,  Q.  2993. 

^  Lord  Avebury  quoted  in  Journal  of  Boyal  Statistical  Soc,  September 
1900,  p.  391  ;  also  M.T.R.,  Q.  162. 


298  COMPETITION  xVND  PROTECTION      [chap.  x. 

tection.  But  with  competitive  industries,  competi- 
tion is  necessarily  more  to  be  feared  than  in  the  case 
of  monopohes,  and  the  desire  to  avoid  it  will  be  even 
more  keenly  felt.  The  administrative  powers  of  Town 
Councils  and  their  influence  with  the  Legislature 
give  them  great  facilities  for  checking  competition 
in  the  case  of  monopolies ;  and  the  means  of  obtain- 
ing protection  are  likely  to  be  further  increased 
with  any  increase  in  the  field  into  which  Municipal 
Trade  enters.  The  advocates  of  public  management 
have  already  laid  down  the  general  principle  that 
potvers  should  not  he  granted  to  companies  to 
compete  with  municipal  enterprises  undertaken  for 
the  public  benefit ;  and  it  is  but  a  slight  change  from 
this  attitude  to  demand  that  existing  companies 
should  be  prevented  from  competing  with  established 
municipal  enterprises,  all  of  which  will  assuredly  be 
declared  to  be  for  the  public  benefit.  The  open 
advocacy  of  protection  for  all  municipal  trades  is 
not  improbable,  because,  for  the  following  reasons, 
protection  for  established  municipal  trades  can  be 
urged  with  peculiar  force.  Trades  tending  to  become 
monopolies,  such  as  the  supply  of  gas,  water,  and 
electricity,  and  tramways,  are  but  comparatively 
little  influenced  by  bad  trade ;  but,  with  competitive 
industries,  the  works  may  lie  half  idle  for  months 
during  periods  of  commercial  depression.  At  such 
times  the  profits  would  cease  to  be  sufficient  to  pay 
the  interest  on  the  loans;  the  ratepayer  would 
grumble  at  the  deficiency ;  and  the  municipal  work- 
man would  use  his  power  as  a  voter  to  ensure  that 
somehow  or  other  full  work  should  be  resumed 
again.  Statutory  protection  would  very  likely  be 
sought,  and  very  possibly  obtained.     If  no  statutory 


I 


cHAP.x.]  COMPETITIVE   TRADES  299 

protection  were  forthcoming,  trade  might  be  stimu- 
lated by  prices  being  reduced  below  the  profit- 
making  level,  municipahties  thus  gaining  a  great 
advantage  as  regards  volume  of  output  over  private 
competitors;  and,  when  the  ratepayers  discovered 
the  effect  of  this  reduction  on  the  finances  of 
the  municipality— if  they  ever  did  discover  it 
—they  might  become  still  more  eager  for  pro- 
tection. At  all  events,  if  competition  were  checked 
in  no  other  instances,  it  certainly  would  be  limited 
as  regards  the  supply  of  goods  to  all  municipal 
and  to  many  other  public  institutions.  A  Board 
of  Guardians,  for  example,  may  now  have  a  dozen 
bakers  to  choose  from  for  its  bread  supply ;  but,  if 
a  municipal  bakery  were  established  in  the  same 
district,  to  say  the  least  of  it,  the  competition  between 
it  and  its  private  rivals  would  be  conducted  on  most 
unequal  terms.  Again  it  is  illegal  for  a  municipality, 
when  managing  electric  lighting  works,  to  force  the 
consumer  to  adopt  any  special  form  of  fittings ; 
but  when  the  municipality  is  also  a  manufacturer 
of  fittings,  it  may  well  be  doubted  whether  this 
prohibition  will  be  effectively  maintained,  or 
whether  the  consumers  will  not  lose  some  of  the 
advantages  arising  from  their  right  to  choose  from 
amongst  many  makers.^  In  short,  if  ever  Municipal 
Trade  invades  the  field  of  competitive  industry  to 
any  great  extent,  it  appears  probable  that  munici- 
palities will  acquire  additional  means  of  protecting 
themselves  in  ways  which  will  seriously  interfere 
with  the  freedom  of  trade. 

(18)  If,  as    we   have   seen,   the   municipalisation 
of    any    industry   whatever    will   produce   a   certain 

»  See  "  Traction  and  Transmission,''  March  1902,  p.  161. 


300  COMPETITION  AND  PROTECTION      [chap.  x. 

check  on  competition,  the  harmful  effects  of  this 
check  will  be  proportionate  to  the  possibility  of  free 
competition  in  its  absence.  This  is  so  evident  that 
it  hardly  requires  demonstration.  Where  com- 
petition is  free,  purchasers  have  a  wide  choice 
of  goods  manufactured  by  different  firms ;  and, 
the  wider  this  choice,  the  more  probable  will 
it  be  that,  if  one  manufacturer  be  selected  on 
grounds  other  than  that  of  merit,  the  goods 
supplied  by  him  will  be  inferior  in  quality  to  the 
best  that  could  be  obtained  at  the  same  price  else- 
where. Moreover,  if  an  artificial  monopoly  be 
created,  bad  management  may  flourish  undetected, 
or,  at  all  events,  unreformed ;  whereas,  in  a  wide 
field  of  competition,  each  individual  manufacturer 
must  keep  his  goods  up  to  the  mark,  or  be  beaten 
out  of  the  trade.  It  is  obvious,  therefore,  that 
the  wider  the  choice  would  be  if  trade  were  free,  the 
more  will  protection  act  like  a  tax  on  the  consumer ; 
the  more  it  will  lessen  his  chances  of  getting  the 
article  he  wants ;  and  the  more  likely  it  will  be  to 
increase  those  evils  which  are  always  felt  under  a 
centralised  system.  Municipal  Trade  is,  in  fact, 
likely  in  this  respect  to  be  proportionately  more 
harmful  as  the  trade  is  naturally  more  free. 

(19)  As  regards  the  sale  of  goods,  the  entry  of 
municipalities  into  competitive  trade  is  so  recent 
that  it  would  hardly  be  expected  that  the  evil  results 
would  be  as  yet  apparent.  Granted  that  the 
municipalisation  of  a  monopoly  is  beneficial,  then 
the  scde,  not  the  manufacture,  by  a  public  authority 
of  any  mere  accessories  to  the  main  product  may 
present  considerable  advantages  and  but  few  dis- 
advantages ;  that  is,  if  no  one  manufacturer  is  unduly 


CHAP.  X.]  SALE   OF   GOODS  301 

favoured  to  the  detriment  of  others.  This  may  be 
true  as  regards  the  sale  of  gas  and  electric  fittings, 
when  once  the  gas  and  electric  works  have  been 
municipalised.  But  even  in  such  cases  some  harm 
may  be  done.  In  Glasgow,  for  example,  the  supply 
of  stoves  is  said  "  not  to  be  deemed  a  permanent 
"  feature  of  the  gas  department,  but  merely  a  passing 
"  bit  of  semi-commercial,  semi-philanthropic  enter- 
"  prise  to  stimulate  the  use  of  gas  as  fuel  in  the 
*' abodes  of  the  poor."^  If  this  be  truly  the  policy 
of  the  Glasgow  Corporation,  it  may  be  noted  in 
passing  that  the  temporary  establishment  of  any 
industry  is  hardly  ever  economical.  But,  as  to  the 
question  under  discussion,  the  point  to  be  considered 
is  the  probable  result  of  these  efforts  if,  as  some  of 
us  believe,  gas  cannot  compete  on  even  terms  with 
coal  for  cooking  purposes,  and  if  the  poor  have 
been  induced  by  this  artificially  stimulated  sale  to 
introduce  a  more  expensive  method  of  cooking 
into  their  homes.  To  permit  competition  to  be 
free  is  generally  the  best  philanthropy,  because  free 
trade  makes  it  most  probable  that  the  consumer  will 
obtain  the  cheapest  and  most  suitable  article. 

(20)  It  is,  however,  by  limiting  the  number  of 
actual  manufacturers  of  goods  that  any  check  on 
competition  is  more  likely  to  do  harm.  Munici- 
pahties,  it  is  true,  have  thus  far  almost  exclusively 
confined  their  productive  works  to  monopolies, 
and  we  have  therefore  practically  no  experience 
to  guide  us  as  to  what  would  be  the  results  of 
the  manufacture  by  public  bodies  on  a  large  scale 
of  goods  the  trade  in  which  is  naturally  free.  It 
can    only    be    said    that    the    foregoing    theoretical 

*  "Municipal  Goveruineut  of  Great  Britain,"  Shaw,  p.  121. 


302  COMPETITION  AND  PROTECTION      [chap.  x. 

arguments  indicate  that  tlie  resulting  evils  would 
be  great,  a  conclusion  which  cannot  be  refuted  by 
facts. 

(21)  In  discussing  the  effects  of  competition, 
attention  is  generally  directed  to  the  struggle 
between  rival  manufacturers  in  the  disposal  of 
their  goods  in  the  market.  But  there  is  another 
form  of  competition,  the  competition  in  starting 
new  industrial  enterprises ;  and  the  evil  effects  of 
any  limitation  of  this  competition  by  municipahties 
would  produce,  perhaps,  even  more  harmful  results. 
There  is  the  struggle  between  inventors  and  others  to 
induce  financiers  to  take  their  rival  projects  into  con- 
sideration ;  there  is  the  struggle  between  architects 
and  engineers  to  get  the  widest  reputation  for 
designing  the  most  suitable  works ;  there  is  the 
struggle  between  rival  financiers  to  induce  the 
public  to  invest  their  money  in  the  schemes  thus 
elaborated ;  and  all  these  rivalries  may  be  included 
under  the  title  of  competition  in  construction,  as 
opposed  to  competition  in  production.  It  has  been 
seen  that  many  industries  invariably  tend  to  become 
monopolies  when  once  established ;  but  the  business 
of  establishing  these  same  industries  is  not  neces- 
sarily monopolistic.  A  private  company,  by  laying 
down  a  tramway,  acquires  the  monojjoly  of  the  ti-am- 
way  traffic  along  a  certain  route ;  but  there  is  no 
reason  why  any  private  company  should  acquire  the 
monopoly  of  co7istructing  tramways  in  any  district. 
When  a  municipality  buys  out  a  gas,  water,  or 
electric  company,  it  is  only  the  substitution  of  the 
new  managers  for  one  other  managing  body ;  but 
when  a  municipality  builds  its  own  works,  many 
competitors    may   be    thrown    out   of    the    field   of 


CHAP.  X.]      COMPETITION   IN   CONSTRUCTION  303 

competition.  Thus  municipalisation  is  far  more 
likely  to  do  harm  by  limiting  competition  in  con- 
struction than  by  limiting  competition  in  production  ; 
and  competition  in  construction  should  always  be  as 
free  as  possible. 

(22)  Whenever  municipalities  undertake  the 
management  of  industries,  some  of  the  evil  results 
of  a  centrahsed  system  will  be  apparent ;  but  these 
harmful  influences  will  be  most  strongly  felt  if 
public  bodies  interfere  with  this  competition  in 
construction.  One  of  the  worst  results  of  any 
such  interference  arises  from  the  consequent 
diminution  in  the  number  of  persons  who  are  in 
a  position  to  take  any  part  in  the  initiation  of 
commercial  enterprises.  When  a  municipality  is 
considering  the  advisability  of  building  any  works, 
or  of  establishing  any  industry,  there  are  few  persons 
consulted  or  concerned  in  the  technical  questions 
on  which  the  success  of  the  schemes  so  largely 
depends ;  and  the  various  decisions  may  all,  in 
fact,  really  rest  on  the  advice  of  one  borough 
engineer.  On  the  other  hand,  when  such  matters 
remain  in  private  hands,  the  number  of  persons 
who  are  considering  the  possibility  of  starting  such 
new  schemes  or  works  will  be  far  greater ;  for 
various  proposals  may  be  under  the  consideration 
of  different  promoters  at  the  same  time ;  and 
private  companies,  being  less  tied  than  public 
bodies  to  appointed  technical  advisers,  will  be  more 
ready  to  call  in  outside  technical  experts,  or  to 
consider  tlieir  proposals.  If  a  public  authority 
is  onmipotent,  it  is  necessary  to  persuade  that  one 
body  and  its  small  staff  of  technical  expert  advisers 
that  a  scheme  is  good  before  the  enterprise  can  be 


304  COMPETITION  AND  PROTECTION      [chap.  x. 

started ;  whereas,  to  insure  that  result  under  free 
private  trade,  all  that  is  necessary  is  that  any  one 
of  the  many  groups  of  men  habitually  undertaking 
such  enterprises  should  be  convinced  of  the  sound- 
ness of  the  proposal.  No  doubt  a  public  body, 
with  its  superior  facilities  for  raising  money  on 
loan,  if  it  be  once  thoroughly  aroused,  can  initiate 
works  with  greater  ease  than  a  private  company. 
But  this  advantage  by  no  means  compensates  for 
the  many  disadvantages  arising  from  the  loss  of 
the  widespread  power  of  initiative  which  can  only 
exist  under  free  private  trade.  The  probability  that 
the  necessary  energy  and  that  the  most  suitable 
proposal  will  be  forthcoming  depends  in  fact  on  how 
widely  the  net  is  spread ;  and  the  net  cannot  be 
very  widely  spread  under  any  centralised  system. 

(23)  Neither  the  benefits  of  free  trade  nor  the 
evils  due  to  centralising  influences  show  them- 
selves to  the  full  extent  immediately  after  any 
change  of  system.  The  habit  of  forming  voluntary 
associations  of  private  individuals  for  commercial 
enterprises  is  but  slowly  acquired  and  but  slowly 
destroyed ;  and  the  extent  to  w  hich  it  exists 
depends  not  only  on  the  amount  of  freedom 
given  to  the  individual  trader,  but  also  on  the 
length  of  time  during  which  that  freedom  has 
lasted.*  The  evil  effect  of  the  introduction  of 
centralised  institutions  is  therefore  cumulative; 
and  if,  as  in  England,  Municipal  Trade  is  only  a 
recent  and  a  not  very  widespread  growth,  and  has, 
as  a  rule,  been  confined  to  the  management  of 
works  created  by  private  companies,  it  is  probable 
that  the  harmful  influences  now  under  consideration 

^  "  L'Etat  Moderne  et  ses  Fonctions,"  P.  Leroy-Beaulieu,  p.  240. 


CHAP,  x]       COMPETITION  IN  CONSTRUCTION  305 

have  hitherto  been  little  felt.  We  must  compare 
our  own  country  with  others  which  have  for  long 
been  ruled  on  bureaucratic  lines  in  order  to  detect 
the  symptoms  of  this  disease.  We  are  told  by  a 
French  author,  for  example,  that  "  none  of  the 
"great  improvements  in  artificial  channels  of  com- 
"  munication  or  in  means  of  transport,  which  have 
"  been  introduced  within  the  last  fifty  years,  have 
*'  originated  in  France — macadamisation  of  roads, 
"  railroads,  locomotives,  suspension  bridges,  steam- 
"  boats,  etc.,  all  are  the  work  of  the  free  and  in- 
"  dependent  engineers  of  England  and  America."  ^ 
All  such  comparisons  are  somewhat  inconclusive ; 
but  I  cannot  doubt  that  a  very  serious  impediment 
will  be  placed  in  the  path  of  progress  if  municipal 
bodies  enter  largely  into  the  field  of  constructive 
enterprise. 

(24)  The  difference  in  the  conditions  under  which 
competition  in  construction,  and  competition  in  pro- 
duction usually  take  place,  though  it  has  not  generally 
been  fully  recognised,  has,  nevertheless,  had  a  marked 
influence  on  the  scope  of  Municipal  Trade.  At 
the  first  introduction  of  any  new  industry  in  which 
a  local  monopoly  can  be  created  there  is,  when 
trade  is  free,  a  keen  competition  to  reap  the 
rewards  which  may  come  to  those  who  succeed 
in  obtaining  the  necessary  concessions ;  and 
progress  is  often  very  rapid.  At  first  the  pubhc 
instinctively  feel  the  benefits  they  receive  from 
the  struggle  between  the  competitors.  At  a 
later  stage,  when  the  ground  is  largely  occupied 
by    private    companies,    the    troubles    due    to    the 

1  "  Dictionnaire  d'Economie  Politique,"  quoted  at  p.  75  of  the  "  State  in 
its  Relation  to  Trade,"  Lord  Farrer,  1883. 

U 


306  COMPETITION  AND  PROTECTION      [chap.  x. 

establishment  of  monopolies  begin  to  be  felt,  and 
the  cry  for  municipalisation  is  raised.  Thus  the 
municipal  movement  has  not,  as  a  rule,  been 
called  into  activity  until  the  period  of  competition  in 
construction  is  over ;  that  is,  until  after  the  period 
during  which  any  hindrance  to  competition  would 
have  been  most  harmful.  Unfortunately,  whilst 
avoiding  the  worst  of  the  evils  due  to  municipal- 
isation, the  opportunity  of  imposing  suitable  regula- 
tions on  private  companies  has  often  been  neglected.  ^ 
(25)  It  has  been  seen  that  one  of  the  most 
attractive  pleas  in  favour  of  municipalisation  is 
that  large  profits  may  thus  be  made,  and  that 
the  burden  of  taxation  may  thus  be  pro- 
portionately lessened.  Unsuccessful  private  enter- 
prises are  seldom  bought  by  Local  Authorities ;  and, 
as  to  enterprises  the  success  of  which  is  an  estab- 
lished fact,  the  risk  involved  in  municipahsing  them 
is  comparatively  small,  whilst  the  prospect  of  making 
great  gains  is  correspondingly  remote.  But  we 
now  see  that  centralising  influences  are  most 
harmful  if  they  are  active  during  the  period  of 
competition  in  construction,  and  if,  in  consequence, 
public  bodies  replace  private  firms  in  the  actual 
construction  of  works.  Those  who  advocate 
Municipal  Trade  on  the  grounds  of  public  finance 
have,  therefore,  this  alternative  to  face :  either 
they  must  hope  to  establish  a  centralised  system 
at  the  period  at  which  it  would  be  most  harmful ; 
or  they  must  abandon  the  prospect  of  even 
moderately   large   average  profits,   whilst,  it  is  true, 

^  It  is  interesting  to  note  that  Miss  Lee's  investigations,  mentioned  in 
chapter  viii.  par.  2,  indicate  that  the  expenditure  on  remunerative  work 
is  less  in  districts  where  the  population  is  rapidly  increasing  than  in  more 
stationary  districts, 


CHAP.  X.]  COMPETITIVE  TRADES  307 

gaining     a     corresponding     immunity     from    large 
losses. 

(26)  Thus,  municipal  enterprise,  by  interfering 
with  competition,  will  produce  injurious  efifects  in 
proportion  to  the  possibility  of  trade  being  free  when 
in  private  hands.  Not  only  is  this  the  case,  but  it 
is  generally  true  that,  in  comparison  with  private 
enterprise,  municipal  management  is  likely  to 
be  less  successful  in  industries  where  competition 
is  possible  than  in  trades  tending  to  become 
monopolies.  Good  management,  special  knowledge, 
and  initiative  are  beneficial  in  all  trades.  In  the  case 
of  a  monopoly,  however,  the  managing  body  may 
be  deficient  in  these  qualities  and  yet  the  business 
may  appear  to  suffer  but  little  in  consequence ; 
because,  being  a  monopoly,  it  will  not  be  much, 
if  at  all,  injured  by  competition ;  and  the  harm 
that  is  done  will  not  be  very  noticeable  because 
comparisons  with  similar  industries  elsewhere 
cannot  readily  be  made.  On  the  other  hand, 
with  a  truly  competitive  trade,  such  as  the  manu- 
facture of  electrical  fittings,  any  considerable 
deficiency  in  the  necessary  qualities  in  the 
managing  body  will  simply  bring  the  business  to 
a  standstill,  to  bankruptcy — or  to  protection.  Far 
greater  and  more  varied  technical  knowledge  is 
required  in  most  competitive  industries  than  is 
necessary  in  many  of  those  monopolies  most 
frequently  municipalised  ;  and,  even  if  a  Board  of 
Directors  is  as  technically  ignorant  as  the 
Committee  of  a  Town  Council,  its  members  will, 
as  a  rule,  possess  more  of  that  most  important 
of  all  business  qualities,  the  knowledge  of  the 
extent  to   which   others  should  be  trusted  in  order 


308  COMPETITION  AND  PROTECTION       [chap.  x. 

to  obtain  the  best  results  in  the  long  run.  Boards 
of  Directors  know  better  when  they  should  trust, 
and  when  they  should  neglect  the  advice  of  their 
expert  advisers ;  and,  when  they  do  neglect  that 
advice,  they  will  act  on  their  own  opinions  with 
more  boldness.  The  two  opposite  qualities  of 
trust  and  initiative  are  those  most  wanted  in 
competitive  trade ;  and,  although  it  may  perhaps 
be  an  exaggeration  to  say  that  municipalities  have 
"  never  invented  or  initiated  anything,  either  with 
"  regard  to  tramways  or  gas  or  electric  lighting,"  the 
only  trades  they  have  undertaken  to  any  considerable 
extent,  yet  it  can  hardly  be  denied  that  the 
absence  of  trust  and  initiative  are  characteristics 
generally  observable  in  all  services  under  public 
management.!  In  fact,  as  pointed  out  in  a  previous 
chapter,  the  average  management  of  Municipal 
Trade  compares  in  these  respects  somewhat 
unfavourably  with  the  average  management  of 
private  industries ;  and,  if  this  is  the  case,  it  is 
obvious  that  the  harmful  results  of  municipalisation 
will  be  more  felt  in  competitive  trades  than  in 
monopolies. 

(27)  There  are,  moreover,  special  reasons  why 
it  is  difficult  for  municipal  managers  to  enter 
into  a  competitive  struggle  with  private  opponents. 
Municipal  Trade  always  involves  some  risk  of  an 
increase  of  taxation  falling  on  the  ratepayers,  and 
there  will  consequently  always  be  some  objections 
raised  against  any  trade  being  municipalised  which 
is  not  for  the  good  of  all  the  citizens  tuithin  the 
taxable  area,  or  which  is  for  the  benefit  of  any 
citizens     ivithout     that    area.       The    not    unnatural 

1  M.T.K,  Qs.  619  (Hon.  E.  Chaudos  Leigli),  and  1132. 


CHAP.  X.]  COMPETITIVE  TRADES  309 

dislike  felt  by  Local  Authorities  of  incumng 
a  risk  without  any  corresponding  benefit  to  any 
or  all  of  their  constituents  will,  in  fact,  often  put 
some  restriction,  great  or  small,  on  the  manage- 
ment of  municipal  trades.  The  effect  of  such 
influences  may  be  seen  in  the  electrical  industry; 
though  they  might  be  even  more  observable  in 
a  truly  competitive  trade.  Electrical  works  are 
beneficial  to  all  living  within  the  municipahty  own- 
ing them  when  they  are  used  to  supply  electricity 
for  the  lighting  of  the  streets,  but  not  when  used  to 
supply  electricity  for  the  lighting  of  private  houses, 
or  for  motive  power  in  private  manufactories ;  and, 
for  this  and  for  other  reasons,  some  cities,  like  Paris, 
only  undertake  the  manufacture  of  electricity  for 
public  purposes.^  But  this  restriction  in  the  field 
of  their  enterprise  must  make  the  business  uneco- 
nomical ;  because,  the  larger  the  works,  the  less 
costly  will  be  the  manufacture,  and  still  more  because, 
in  order  to  produce  electricity  at  the  lowest  cost,  the 
machinery  must  be  run  as  continuously  as  possible. 
For  this  latter  reason,  electric  lighting  works  should 
find  a  market  for  their  electricity  during  daylight, 
and  this  can  best  be  done  by  selling  it  for  motive 
power  for  lifts  and  other  machinery,  a  trade  which 
would  certainly  only  be  directly  beneficial  to  a  small 
minority. 

(28)  Bargaining  is  also  a  matter  of  exceptional 
difficulty  in  trades  managed  by  public  bodies.  For 
example,  the  bargaining  whicli  must  take  place  in 
the  above-mentioned  supply  of  electricity  for  motive 
power,  may,  it  is  easy  to  see,  open  the  road  to 
jobbery ;  and   both   the    fear   of  the    accusation    of 

^  "Municipal  Goveniuient  in  Continental  Europe,"  A.  Shaw,  p.  51. 


310  COMPETITION  AND  PROTECTION       [chap.  x. 

jobbery,  and  the  endeavour  to  prevent  it,  will  in 
such  cases  be  apt  to  lead  to  the  laying  down  of 
general  regulations  as  to  the  sale  of  electricity 
manufactured  by  municipalities.  An  attempt  may 
be  made,  for  example,  to  regulate  prices  in  this 
and  other  industries  according  to  the  expenditure 
involved,  a  policy  that  some  States  have  adopted 
with  regard  to  their  railways ;  and  such  a  proposal 
would  be  contrary  to  true  economical  principles, 
because  "  there  was  never  a  more  mistaken  idea  than 
"  the  idea  that  rates  would  be  reduced  if  they  were 
"  based  upon  cost  of  service."  ^  Hindrances  will  in 
some  such  ways  be  placed  in  the  way  of  the  free 
bargaining  of  Local  Authorities,  hindrances  which 
would  be  probably  less  felt  in  private  trade ;  and, 
wherever  bargaining  is  not  free,  the  supply  cannot 
be  economically  adjusted  to  the  demand.  In  the 
case  of  the  use  of  electricity  for  motive  power, 
to  whatever  extent  sales  were  thus  checked,  to  a 
corresponding  extent  must  the  price  paid  for  the 
lighting  of  the  streets  and  houses  be  increased  in 
order  to  cover  the  total  cost  of  manufacture.  In 
the  case  of  a  truly  competitive  industry,  any  inter- 
ference with  the  power  of  bargaining  might  lead  to 
the  closure  of  the  works. 

(29)  Another  restrictive  effect  on  INIunicipal 
Trade  is  due  to  the  natural  tendency  of  Local 
Authorities  to  confine  their  enterprises  to  their  own 
local  government  areas  ;  an  illustration  of  which  is 
to  be  found  in  the  municipal  building  trade.  I'X'^hen- 
ever  work  is  slack  near  home,  the  enterprising 
private  builder  looks  for  it  in  other  districts  even 
at  considerable   distances ;    but  this    course    cannot 

"  Hallway  Transportation,"  Hadley,  p.  250. 


CHAP.  X.]        DIFFICULTIES  IN  COMPETITION  311 

be  adopted  by  the  committee  in  charge  of  this 
branch  of  municipal  industry.  Any  limitation  of 
the  field  of  enterprise  inust  increase  the  cost 
of  municipal  building;  for,  during  slack  times, 
the  standing  expenses  will  run  on,  and  must  be 
recovered  during  the  busy  periods.  If  any  class  of 
building  work  ever  passes  completely  into  the  hands 
of  municipalities,  the  effect  will  be  somewhat  similar 
to  the  establishment  of  a  rigid  system  of  pro- 
tection in  each  separate  local  government  area, 
by  means  of  which  all  outside  traders  will  be 
prevented  from  competing  within  it.  Results 
somewhat  similar  to  those  due  to  protection  are, 
however,  still  more  likely  to  be  felt,  because  the 
managers  of  municipal  trades,  being  political  bodies 
dependent  on  votes,  will  often  succumb  to  the 
temptation  to  give  orders  for  materials  and  to  give 
out  contracts  exclusively  within  the  immediate 
neighbourhood.  Private  companies,  on  the  other 
hand,  are  more  likely  to  be  guided  by  the  quality 
and  price  of  the  goods  to  be  obtained  or  of  the  ser- 
vices to  be  rendered  without  reference  to  any  other 
considerations ;  and  they  are  therefore  more  likely 
to  reap  the  benefits  of  any  competition  between 
those  who  want  to  serve  them.  Any  such  restric- 
tions on  the  freedom  of  trade  will  normally 
produce  the  effect  of  increasing  the  cost  of  the 
manufacture  of  the  article  supplied  and  conse- 
quently of  the  price  at  which  it  can  be  sold.  Thus 
in  thoroughly  competitive  trades,  any  system  tend- 
ing to  confine  the  manufacture,  purchase,  or  sale 
of  goods  to  any  particular  district,  or  to  hamper 
the  management  by  detailed  regulations,  will 
usually    produce   very    harmful    results ;    and    such 


312  COMPETITION  AND  PROTECTION       [chap,  x 

restrictive     influences     are    far    more    probable    in 
municipal  than  in  private  trade. 

(30)  There  are,  moreover,  certain  general  ob- 
jections to  municipal  trading  which  apply  with 
increased  force  when  the  trade  is  a  competitive 
one.  Less  change  or  variation  is  necessary  in  the 
management  of  those  monopolies  which  are  usually 
municipalised  than  in  the  management  of  the 
majority  of  competitive  industries ;  and  "  where 
"the  business  is  largely  a  matter  of  routine,  the 
"  opportunities  for  political  manipulation  are  reduced 
"  to  a  minimum."  ^  It  follows,  therefore,  that  the 
danger  of  corruption  will  be  greatly  increased  if 
public  bodies  enter  into  competitive  trade.  The 
effect  of  the  bad  management  of  a  monopoly  will 
probably  only  be  that  some  inconvenience  will  be 
felt  by  the  consumers,  and  that  some  revenue  will 
be  lost  to  the  public ;  whereas,  in  competitive 
trades,  the  same  causes  might  produce  the  loss 
of  much  capital.  The  risk  of  loss  is,  in  fact, 
far  greater  where  there  is  no  monopoly,  and 
Municipal  Trade  is  proportionately  more  objection- 
able. Municipal  Trade  is  generally  open  to  the 
objection  that  the  same  body  which  manages  the 
industry  is  also  responsible  for  the  appointment  of 
those  whose  duty  it  is  to  act  as  inspectors ;  and 
this  dual  relation  is  likely  to  be  specially  em- 
barrassing in  competitive  trades.  For  example, 
when  municipal  and  private  lodging-houses  are 
competing  side  by  side,  the  owners  of  the  private 
houses  would  be  tempted  to  complain,  even  though 
there  were  no  truth  in  the  accusation,  that  they 
were   at   a   disadvantage  because   the    police   super- 

^  "  Railway  Transportation,"  Hadley,  p.  253. 


CHAP.  X.]  MISCELLANEOUS  OBJECTIONS  313 

vision  was  less  strictly  enforced  with  regard  to 
their  municipal  rivals.  It  may  also  be  urged  that 
it  is  not  equitable  to  tax  any  tradesman,  or  even 
to  subject  him  to  the  risk  of  an  increase  of 
taxation,  with  the  definite  object,  not  of  buying 
him  out,  but  of  setting  up  a  rival  to  himself  in 
the  trade  by  which  he  earns  his  living.  Opinions 
will  probably  differ  widely  as  to  the  amount  of 
attention  which  should  be  paid  to  this  objection  to 
municipalities  undertaking  competitive  trades.  But 
there  can  be  no  doubt  that  private  bakers,  for 
example,  would  feel  greatly  aggrieved  if  any  pubhc 
authority  capable  of  imposing  taxes  on  them  were 
to  use  the  credit  thus  obtainable  to  set  up  rival 
bakeries,  and  thus  to  diminish  their  receipts ;  and 
any  not  unreasonable  irritation  against  a  governing 
body,  and  any  complaints  founded  on  apparently 
equitable  pleas,  form  in  themselves  pro  tanto  a  valid 
argument  in  favour  of  removing  the  causes  of  the 
irritation  and  of  the  complaints.  All  these  are 
reasons  why  municipalisation  is  more  objectionable 
in  competitive  trades  tlian  in  trades  which  tend  to 
become  monopolies. 

(31)  On  the  other  hand,  one  of  the  strongest 
arguments  in  favour  of  INI unicipal  Trade  is  that 
consumers  will  be  best  safeguarded  if  the  supply 
is  managed  by  a  publicly  elected  body ;  and,  what- 
ever strength  this  argument  may  have  in  the  case  of 
monopolies,  it  obviously  tells  with  much  less  force 
in  favour  of  the  municipalisation  of  competitive 
industries.  When  the  supply  of  gas  is  indifferent, 
for  example,  the  householder  can  do  little  more  than 
complain  of  its  bad  quality ;  and  such  complaints 
will,   so    it  is    urged,   be   best  attended  to   if   the 


314  COMPETITION  AND  PROTECTION       [chap.  x. 

gas-works  are  municipalised.  But  if  the  sale  of 
oil  for  lamps,  a  thoroughly  competitive  business, 
were  undertaken  by  public  bodies,  the  dissatisfied 
consumer  could  go  elsewhere  when  giving  his  next 
order.  Where  competition  exists,  the  citizen  has  the 
power  of  getting  goods  from  various  quarters,  and 
thus  possesses  a  remedy  for  grievances  far  more 
effective  than  any  complaint  to  a  Local  Authority. 
The  existence  or  the  non-existence  of  municipal 
shops  or  manufactories  supplying  competitive  goods 
becomes,  therefore,  a  matter  of  comparative  indiffer- 
ence to  the  consumer. 

(32)  It  appears,  therefore,  that  the  arguments 
against  Municipal  Trade  are  far  stronger  and  that 
the  arguments  for  it  are  much  weaker  in  the  case 
of  competitive  industries  than  in  the  case  of 
monopolies ;  and  it  has  consequently  often  been 
suggested  that  municipal  enterprise  should  be  strictly 
limited  to  those  trades  which  tend  to  become 
monopolies  in  private  hands.  But  is  any  such 
hmitation  practicable  ?  If  Municipalities  are  to  be 
permitted  to  manage  gas-works,  it  would  be  out  of 
the  question  to  refuse  to  them  the  permission  to  deal 
in  any  way  thought  desirable  with  the  by-products 
of  that  industry  ;  and,  in  fact,  power  to  sell  residuals 
is  invariably  given.  Here  actual  competition  comes 
in  at  once.  It  may  be  unnecessary  for  a  munici- 
pality owning  gas-works  also  to  municipalise  electric 
lighting  works ;  for  there  is  no  reason  why  public 
bodies  should  not  meet  competition  in  the  same  way 
as  private  traders  have  to  do.  The  fact,  however, 
remains  that  Local  Authorities  will  seldom  face 
competition,  and  the  municipalisation  of  gas  does 
often  lead  to  the  municipalisation  of  electric  lighting. 


I 


cHAi'.  X.]  EXTENSION  OF  TRADES  315 

The  municipalisation  of  electric  lighting  leads  both 
to  municipal  tramways  and  to  the  municipal  supply 
of  electricity  for  motive  power,  the  extensions  of  the 
business  in  both  cases  being  urged  on  the  very 
legitimate  ground  that  a  sale  of  electricity  during  the 
period  of  daylight  is  necessary  to  make  electric  light- 
ing at  night  economical.  Thus  municipalities  now 
enter  into  competition  with  hydraulic  power  works, 
and  may  also  in  future  very  possibly  compete  with 
private  electric  power  supplies,  such  as  those  now 
being  established  from  large  central  distributing 
stations.  The  municipalisation  of  tramways  has  led 
to  a  competition  with  omnibuses,  and  also  in  several 
instances  to  the  running  of  municipal  omnibuses 
on  roads  where  lines  can  not  be  laid,  to  act  as 
feeders  to  the  tramways.  \A^hen  it  was  first  pro- 
posed to  municipalise  gas-works,  who  would  have 
imagined  that  this  enterprise  would  have  led  by 
gradual  and  often  necessary  steps  to  our  Local 
Authorities  being  brought  into  competition  with  the 
salesmen  of  coke,  naphtha,  gas  stoves,  electric  light- 
ing fittings,  etc.,  and  with  the  proprietors  of 
omnibuses  and  of  hydraulic  and  electrical  supply 
companies  ?  Is  it  not  almost  certain  that  other 
municipal  ventures  will  spread  beyond  their  original 
limits  in  the  same  way  ? 

(33)  The  supply  of  water,  the  oldest  municipal 
supply  that  exists,  has,  it  is  true,  practically  led 
to  no  further  extension  of  business.  This  is,  how- 
ever, due  to  the  fact  that  there  is  no  substitute 
for  water;  whereas  some  substitute  can  be  found 
for  every  other  commodity.  But  even  water  supply 
has  been  made  the  basis  for  a  demand  for  establish- 
ing  municipal   hydraulic   power  works,  though   the 


31(1  COMPETITION  AM)  PROTECTION        [chap.  x. 

arguments  in  favour  of  such  a  step  are  extremely 
feeble.  In  all  other  cases  Municipal  Trade  has  a 
distinct  tendency  to  enlarge  its  borders.  There 
are,  no  doubt,  objections  to  municipal  works  depart- 
ments undertaking  building  operations  outside  the 
municipal  area ;  but  such  an  extension  of  work  is 
logical,  and  may  possibly  be  permitted  in  certain 
cases.  In  the  case  of  dwelling-houses  built  by 
Local  Authorities,  permission  has  several  times 
been  given  to  place  shops  on  the  ground  Hoor, 
a  perfectly  logical  consequence  of  the  first  step.' 
No  one  can  object  to  municipal  dust  destructors. 
Several  Local  Authorities  have,  however,  erected 
works  for  the  manufacture  of  concrete  paving  from 
the  refuse  from  the  destructors ;  and  from  this  begin- 
ning they  have  been  led  to  surfacing  the  flags  with 
granite-chippings,  when  the  original  refuse  plays 
but  a  comparatively  unimportant  part  in  the  total 
business.  The  flags  thus  made  are,  as  a  rule,  used 
exclusively  in  all  public  works,  such  as  street 
paving,  with  regard  to  which  the  Local  Authorities 
have  the  power  of  controlling  the  specifications ; 
and  this  without  any  adequate  proof  being  forth- 
coming that  the  ousting  of  the  private  fiag-maker 
from  this  branch  of  his  business  results  in  any  real 
gain  to  the  ratepayer."  The  municipal  management 
of  monopolies  leads,  therefore,  in  time  to  the  entry  of 
municipalities  by  unexpected  extensions  into  competi- 
tive trade ;  and,  if  JNIunicipal  Trade  in  competitive 
industries  is  objectionable,  here  is  another  general 
argument  in  favour  of  avoiding  all  Municipal  Trade 
whate\'er ;  an  argument  which  must  be  allowed  to 
weigh  in  the  balance  for  what  it  is  worth. 

'  M.T.R.,  g.  514.  '  M.T.R.,  Q.  4163. 


I 


CHAP,  x]  SUMMARY  317 

(34)  To  summarise  the  foregoing  conclusions 
with  regard  to  trades  which  do  not  tend  to  become 
monopolies,  it  appears  that  English  municipalities 
are,  at  present,  showing  a  distinct  tendency  to 
municipalise  competitive  trades  as  well  as  mono- 
polies, though  the  advantages  which  can  be  claimed 
for  Municipal  Trade  are  less,  and  the  disadvantages 
to  be  feared  are  greater  in  proportion  as  the  in- 
dustry municipalised  is  competitive  when  in  private 
hands.  There  is  little  actual  experience  to  guide 
us  as  to  the  effects  of  municipal  enterprise  m  com- 
petitive industries ;  but  it  cannot  be  doubted  that 
competition  would  be  decreased  if  public  bodies 
managed  such  trades.  Should  this  prove  to  be 
the  case,  the  results  will  be  somewhat  similar  to 
the  effects  of  protection,  the  price  of  goods  being 
increased,  and  the  chance  of  the  consumer  obtain- 
ing the  article  he  considers  most  suitable  being 
diminished.  These  harmful  results  of  municipal 
enterprise  will  be  most  felt  when  pubhc  bodies 
build  works  or  establish  industries  themselves ; 
they  will  be  somewhat  less  felt  if  the  action  of 
municipalities  is  confined  to  the  purchase  and 
management  of  going  concerns ;  and  the  effects 
will  be  far  less  harmful  if  industries,  after  being 
bought,  are  leased  out  to  private  companies  to  be 
managed  by  them  for  a  term  of  years.  JNIunici- 
palities  are  less  likely  to  compare  favourably  with 
private  companies  in  competitive  trades  than  in 
monopolies,  because  the  disadvantages  arising  from 
the  tendency  to  keep  public  work  to  one  area 
and  the  want  of  initiative  in  public  bodies  will 
be  most  felt  where  competition  is  most  possible. 
Competition,  moreover,  increases  the  risks  of  trade, 


318  COMPETITION  AND  PROTECTION        [chap,  x 

and  the  greater  the  risks,  the  greater  is  the  objec- 
tion to  trading  on  pubhc  credit.  It  would  appear, 
therefore,  that  there  are  very  strong  reasons  for  con- 
fining INIunicipal  Trade  to  the  management  of  pur- 
chased monopohes ;  but  such  a  limitation  of  public 
enterprise  is  difficult,  or  even  impossible,  because 
of  the  tendency  of  all  traders  to  enlarge  their  spheres 
of  action.  In  short,  the  more  competition  is  possible, 
the  stronger  must  be  the  case  in  favour  of  the  public 
management  of  any  industry  before  the  balance  of 
argument  turns  in  its  favour,  and  the  more  it  be- 
comes desirable  to  delay  municipal  ownership  even 
in  cases  where  it  ought  eventually  to  be  adopted. 
This  is  true  both  for  the  foregoing  reasons,  and 
because  a  governing  body,  by  excluding  and  super- 
seding individual  energy,  "  substitutes  a  less  qualified 
"  instrumentahty  for  one  better  qualified,  or,  at  any 
"rate,  substitutes  its  own  mode  of  accomplishing 
"  work  for  all  the  variety  of  modes  which  would  be 
"  tried  by  a  number  of  equally  qualified  persons  aim- 
"  ing  at  the  same  end ;  a  competition  by  many 
"  degrees  more  propitious  to  the  progress  of  im- 
"provement,  than  any  uniformity  of  system."^ 

^  "  Principles  of   Political   Economy,"  J.  S.   Mill,  book  v.   chap.  xi. 
par.  5. 


XI 

MUNICIPAL    HOUSE-BUILDING 

(1)  The  ordinary  trader  concerns  himself  but  little 
with  the  effect  which  the  use  or  consumption  of  the 
goods  supplied  by  him  will  have  on  the  consumer. 
He   takes   into   consideration   all   the   circumstances 
likely  to   increase  the  demand   for   his   wares,   and, 
consequently,  to  swell  his  profits ;    but  beyond  this 
he    does    not   trouble   himself.      In   some   cases,   as 
regards  the   sale   of  electricity  by  municipalities,  for 
example,   the    Local    Authorities    concerned    regard 
the  matter  almost  exclusively  from  the  same  point 
of  view  as  the  private   proprietor ;   for  they  merely 
wish    to    meet    such    demands    as    can    be   met   in 
a   profitable   manner.     With  regard  to  other  muni- 
cipal   enterprises,    however,     many     other     circum- 
stances  have   to   be   taken    into   consideration.      In 
the    housing   question,  it   is   not    enough    to    study 
merely   the   actual   wants   or   desires   of   the   "  con- 
sumers," that  is,  in  this  case,  of  the  would-be  tenants 
or  owners  ;    we  must  also  consider  what  is  for  the 
moral   and   material   well-being   of  the   nation,  and 
whether   or   not   any   of  the   necessary   expenditure 
on  the  housing  of  the  poorer  classes  should  be  met 
out  of  the  public  funds.     But,  as  regards  many  of 
these  questions,  whatever  may  be  the  answer  given, 

319 


320  MUNICIPAL   HOUSE-BUILDING  [chap.  xi. 

the  desired  result  can  frequently  be  obtained  quite 
as  well  by  undertakings  managed  by  private  pro- 
prietors as  by  undertakings  managed  by  munici- 
palities. A  complete  discussion  of  the  housing 
question  will,  therefore,  not  here  be  attempted,  and 
many  very  important  subjects  will  be  left  entirely 
on  one  side.  AVe  are  solely  concerned  with  the 
choice  between  municipal  and  private  trade,  and  all 
that  will  here  be  attempted  will  be  to  epitomise  the 
various  arguments  already  discussed,  and  to  show 
how  they  are  applicable  to  the  housing  question. 
We  shall  thus  briefly  illustrate  a  process  which 
ought  to  be  gone  through  in  the  case  of  every 
important  trade  before  a  decision  w^ith  regard  to  its 
municipalisation  is  finally  adopted. 

(2)  But  even  this  portion  of  the  subject  cannot  be 
very  briefly  treated,  chiefly  because  municipalities  have 
undertaken  the  work  from  very  different  motives,  and 
in  very  different  degrees.  As  to  their  motives,  the 
three  main  influences  at  work  have  been  the  desire 
in  some  quarters  to  make  the  municipal  OA^nership 
of  houses  a  stepping-stone  to  Socialism  ;  the  desire 
to  erect  new  houses  for  the  accommodation  of  the 
inhabitants  of  any  cleared  insanitary  area,  and  thus  to 
minimise  the  suffering  inevitably  inflicted  on  them ; 
and  the  desire  to  meet  any  alleged  insufliiciency 
in  house  accommodation  by  building  on  hitherto 
unoccupied  areas.  The  use  of  the  housing  question 
as  a  socialistic  weapon  may  here  be  dismissed  with 
the  single  remark  that  it  is  a  dangerous  weapon 
where  municipalities  supply  houses  at  lower  rents 
than  those  which  unassisted  private  firms  have  to 
charge,  the  inevitable  loss  being  made  up  by 
taxation.       A     false     impression     is     thus     created 


CHAP.  XL]  TRADES   INVOLVED  321 

amongst   the   uneducated   as   to   the   advantages   of 
sociahstic  systems. 

(3)  In  the  management  of  house  property,  land 
agents  or  rent  collectors,  workmen,  builders,  archi- 
tects, and  land  surveyors  or  experts  have  to  be 
employed  ;  and  one  or  all  of  these  trades  may  be 
municipalised.  When  houses  are  built  by  munici- 
palities and  are  sold  directly  they  are  completed, 
all  these  industries  come  under  public  management 
except  the  last  mentioned,  namely,  that  of  the  rent 
collector.  When  the  municipal  builder  is  allowed 
to  make  what  would  be  termed  sub-contracts  in 
private  trade,  the  services  of  the  municipal  workman 
can  be  more  or  less  dispensed  with.  When  the 
whole  operation  of  building  is  done  by  private  con- 
tractors, no  municipal  builder  need  be  employed. 
When  there  is  a  competition  for  the  design  of  the 
houses  to  be  built,  the  municipal  architect's  work 
becomes  that  of  selection  merely.  When  the  opera- 
tions are  confined  to  areas  where  rebuilding  is 
obligatory  under  Acts  of  Parliament,  the  services 
of  the  municipal  land  expert,  or,  we  might  perhaps 
say,  of  the  municipal  land  speculator,  are  not  so 
much  in  request.  Thus  municipalities  may  imder- 
take  housing  operations  in  different  ways  or  degrees ; 
and,  if  this  is  borne  in  mind  in  the  following  discus- 
sions, it  will  be  seen  that  the  greater  the  number  of 
trades  mvmicipahsed,  the  stronger  are  the  arguments 
against  this  form  of  municipal  trading. 

(4)  Before  considering  these  arguments  against 
municipal  trading,  the  arguments  in  its  favour  will 
first  be  discussed.  Where  there  is  a  monopoly, 
so  it  is  urged,  there  must  the  State  step  in  and 
regulate   trade ;    and   the   surest   way  of  regulating 


322  MUNICIPAL   HOUSEBUILDING         [chap.  xi. 

trade  is  actually  to  manage  it.  Water  supply  is 
an  absolute  monopoly,  and  water  supply  should 
therefore  be  municipalised.  House  property  in 
towns  is  also  an  absolute  monopoly,  and  such 
property  should,  so  the  argument  runs,  also  come 
under  public  management.  If  this  contention  be 
sound,  it  obviously  points  not  only  to  JMunicipal 
Trade  in  the  housing  of  the  working  classes,  but  also 
to  the  complete  nationalisation  of  all  real  property. 
But  there  is  a  fundamental  distinction  between 
water  supply  and  house-building  which  is  alone 
sufficient  to  prevent  conclusions  arrived  at  in  the 
one  case  from  being  necessarily  applicable  to  the  other. 
The  State  cannot  prevent  water  supply  from  becom- 
ing a  monopoly  whether  that  supply  is  in  private 
hands  or  not ;  whereas  the  State  can,  without  owning 
a  single  acre,  do  much  to  prevent  the  owners  of  land 
from  exercising  the  powers  they  thus  acquire  in  a 
harmful  manner.  If  the  supply  of  land  offered  in 
the  market  for  the  building  of  workmen's  houses  is 
inadequate,  and  if  there  is  land  which  might  be 
placed  on  the  market  if  the  owners  were  willing  to 
do  so,  then  the  State  could  step  in  and  force  those 
owners  to  offer  their  land  in  the  market  at  reasonable 
prices  ;  and  it  might,  in  my  opinion,  often  be  right 
for  the  State  to  act  in  this  manner.  But  the  point 
I  wish  to  bring  out  here  is  that  the  objections  which 
could  be  urged  against  such  a  proceeding  are  no 
greater  than  the  objections  which  can  be  urged 
against  the  compulsory  sale  of  land  for  the  purpose 
of  municipal  house-building.  We  are  not  here 
concerned  with  questions  connected  with  the  forced 
sale  of  land ;  but  we  are  bound  to  observe  that  any 
objectionable    land    monopoly    can    be    broken    up 


CHAP.  XI.]  CLEARED   AREAS  323 

exactly  as  well  without  the  aid  of  Municipal  Trade 
as  with  it.  In  this  stage  of  the  discussion  it  would, 
perhaps,  be  more  legitimate  to  aver  that  the  State 
could  always  ensure  private  trade  having  as  good 
an  opportunity  as  JMunicipal  Trade  of  meeting  the 
demands  made  on  it.  The  remaining  question  is 
which  can  best  meet  that  demand. 

(5)  No  doubt,  it  has  frequently  been  urged  that 
facts  prove  incontestably  that  in  many  cases  private 
enterprise  is  incapable  of  supplying  the  needs  of  the 
people  in  these  respects.  In  certain  cleared  insanitary 
areas  in  Liverpool,  for  example,  when  the  muni- 
cipality was  legally  bound  to  see  that  a  certain 
amount  of  house  accommodation  was  provided  for 
those  dispossessed,  and  where  the  sites  were  incon- 
venient for  tenements,  the  city  felt  obliged  "  to  take 
"  in  hand  those  sites,  because  a  private  speculator  or 
"builder  would  not  undertake  to  build  dwellings  of" 
a  suitable  class. ^  Obviously  the  reason  why  specu- 
lators refused  to  come  forward  was  that  they  anti- 
cipated that  the  enterprise  would  be  unremunerative, 
a  subject  on  which,  generally  speaking,  they  are  better 
able  to  form  a  judgment  than  any  elected  body. 
After  carefully  estimating  their  probable  loss  on  any 
such  rehousing  operation,  has  the  municipality  of 
Ijiverpool  ever  offered  to  give  an  equal  amount  as  a 
bonus  to  any  private  firm  who  would  undertake  the 
work  and  take  the  risk  connected  with  it?  Until 
some  such  experiment  has  been  tried  and  has  failed, 
it  is  useless  to  urge  the  necessity  of  INIunicipal 
Trade  on  the  ground  that  private  traders  will  not 
come  forward  ;  for  on  financial  grounds,  at  all  events, 
the  objections  to  the  payment  of  a  bonus  to  private 

1  M.T.R.,  Qs.  2264,  2271,  and  3674. 


324  MUNICIPAL   HOUSE-BUILDING         [chap.  xi. 

firms  out  of  the  rates  is  no  greater  than  the  objection 
to  covering  losses  made  in  municipal  trades  by  pay- 
ments out  of  the  public  revenues. 

(6)  Again,  it  has  been  urged  in  favour  of  munici- 
pal house-building  that  a  better  class  of  dwelling  will 
thus  be  supplied  and  that  the  material  and  moral  con- 
dition of  the  people  will  consequently  be  raised.  If 
this  fact  could  be  established,  the  logical  conclusion 
would  be  that  every  house,  or,  at  all  events,  every 
workman's  house,  throughout  the  land  should  in 
future  be  built  by  the  State.  To  those  who  reject 
such  a  socialistic  conclusion,  but  who,  nevertheless, 
urge  that  certain  classes  requiring  special  treatment 
might  be  assisted  in  this  way,  it  should  be  pointed 
out  that  the  choice  lies  between  municipal  building 
and  jyHvate  building  under'  State  regulations.  No  one 
doubts  the  necessity  of  enforcing  some  regulations 
with  regard  to  house-building,  public  or  private ;  for 
the  case  for  sanitary  control  is  overwhelming.  But 
the  advocates  of  JNIunicipal  Trade  must  show  that 
there  are  certain  desirable  regulations  which,  if 
imposed  on  private  builders,  could  not  be  enforced, 
whilst  the  required  results  can  be  obtained  when 
the  houses  are  built  by  municipalities ;  and  this  has 
not  been  demonstrated.  It  is  true  that  restrictive 
regulations  may  make  private  house-building  un- 
profitable ;  but  this,  as  we  have  just  seen,  would  not 
tell  in  favour  of  INlunicipal  Trade,  which  for  the  same 
results  would  be  equally  unprofitable.  It  should, 
moreover,  be  noted  in  connection  with  this  subject 
that  all  regulations,  the  enforcement  of  wliich  is  in 
the  hands  of  municipalities,  are  somewhat  more 
likely  to  be  strictly  enforced  in  the  case  of  private 
trade  than  in  the  case  of  Municipal  Trade.     Police 


I 


CHAP.  XI.]  EFFECT   OF  EXAMPLE  325 

controlled  by  Local  Authorities,  for  example,  would 
be  somewhat  more  tempted  to  overlook  tlie  failings 
of  municipal  employees  in  charge  of  municipal 
lodging-houses  than  the  similar  shortcomings  of 
private  lodging-house  keepers.  To  deny  that  there 
is  any  force  in  this  contention  is  to  deny  that 
Municipal  Authorities  are  guided  by  ordinary  human 
motives,  and  consequently  liable  to  fjiil  like  mortals. 
The  plea  for  municipal  house-building  cannot,  in  fact, 
be  sustained  on  the  ground  that  healthier  houses  can 
thus  be  erected. 

(7)  The  last  argument  in  favour  of  municipal 
house-building  that  will  here  be  noticed  is  that 
founded  on  the  alleged  good  example  which  would 
thus  be  set  to  private  builders  and  owners.  It  may 
with  truth  be  urged  that  what  may  be  called 
experimental  house-building  is  costly,  and  that 
private  owners  will  not  always  be  ready  to  undertake 
such  work ;  though  up  to  the  present  time  far  more 
has  been  done  by  private  philanthropic  effort  than 
by  municipal  enterprise  in  this  direction.  To  spend 
public  money  in  order  to  ascertain  what  are  the  best 
types  of  houses  to  suit  the  poorest  classes  may  be 
perfectly  legitimate.  But  it  is  to  be  noted  that  such 
experiments  necessitate  the  employment  of  no 
municipal  employee  besides  the  municipal  architect ; 
because,  after  the  plans  have  been  drawn,  the  actual 
building  may  be  let  out  to  private  contract.  More- 
over, the  erection  of  comparatively  few  houses  of  any 
particular  description  will  be  sufficient  to  ascertain 
whether  the  type  answers  the  required  purposes 
or  not.  Thus  the  employment  of  the  municipal 
architect  to  a  moderate  extent  in  experimental 
house-building   may   be   advantageous ;  but   beyond 


326  MUNICIPAL   HOUSE-BUILDING         [chap.  xi. 

this  municipalities  can  do  notliing  in  the  way  of 
setting  a  good  example.  With  the  object  of  raising 
the  status  of  a  certain  class  of  the  community,  a 
Local  Authority  may  erect  dwellings  of  a  kind 
superior  to  that  to  which  they  have  been  accustomed, 
with  the  hope  that  that  class  will  occupy  them.  No 
good  can,  as  a  rule,  come  of  such  efforts.  Houses 
built  by  municipalities  probably,  as  we  shall  see,  will 
not  be  occupied  in  the  way  desired,  and  no  change 
will  be  produced  in  the  type  of  house  built  by  private 
builders  for  the  class  whose  condition  the  muni- 
cipality intended  to  improve.  Philanthropic  owners 
and  companies  have  been  the  first  to  introduce  many 
reforms  in  house-building  for  the  poorer  classes ; 
whilst  commercial  private  house-building  is  guided 
by  economic  principles,  and  not  by  examples,  bad  or 
good. 

(8)  Turning  to  the  arguments  against  JNIunicipal 
Trade,  the  first  to  be  noticed  is  one  which  has  been 
freely  used  on  political  platforms.  Under  Part  I.  of 
the  Housing  of  the  Working  Classes  Act,  Local 
Autliorities,  when  clearing  away  houses  in  insanitary 
areas,  are  obliged  to  provide  accommodation  for  a 
large  number  of  persons  in  the  vicinity.  The  object 
of  this  provision  is  that  dwellings  should  be  provided 
for  those  displaced,  thus  as  far  as  possible  lessening 
the  suffering  due  to  this  compulsory  displacement. 
But  from  all  sides,  from  London,  Edinburgh, 
Liverpool,  and  Birmingham,  we  hear  that  but  few 
of  the  dwellers  in  the  demolished  houses  ever 
find  their  way  into  the  new  dwellings  erected  for 
their  accommodation.^  It  is,  therefore,  urged  that 
these   municipalities,   when   they   have   built  houses 

^  See  Tiraes,  21st  October  1902. 


CHAP.  XI.]        REHOUSING   THE   DEHOUSED  327 

under  the  conditions  imposed  on  them  by  this  Act, 
have  ahnost  entirely  failed  to  attain  the  object 
apparently  intended ;  and  that  municipal  trading 
must  therefore  be  condemned  on  this  account. 

(9)  There  are,  however,  several  serious  flaws 
in  the  foregoing  argument.  In  the  circumstances 
named,  municipalities  are  bound  to  see  that  houses 
are  erected  whether  they  wish  to  do  so  or  not ;  and, 
to  make  good  the  case  against  JMunicipal  Trade,  it 
would  be  necessary  to  prove  that  better  accom- 
modation would  have  been  provided  for  the 
individuals  displaced  if  municipalities  had  entrusted 
the  work  to  private  firms  instead  of  undertaking 
it  themselves.  I  doubt  if  this  has  been  actually 
demonstrated,  though  it  may  be  true.  It  is,  how- 
ever, even  more  important  to  note  that  the  above 
argument  assumes  that  a  municipality  ouglit  to 
rehouse  the  same  individuals  that  it  dehouses.  But 
is  this  the  case  ?  The  inhabitants  of  slum  areas, 
with  whom  we  are  now  solely  concerned,  are  of  the 
poorest  classes,  and  are  accustomed  to  living  in  the 
poorest  and  worst  of  dwelling-places.  When  they 
are  displaced  they  will  not  pay  a  rent  higher  than 
that  which  they  have  been  paying.  They  are,  in  fact, 
certain  to  drift  away  into  the  worst  accommodation 
that  is  to  be  found  in  the  neighbourhood.  To  find 
them  all  swarming  into  a  new  group  of  houses  would 
therefore  lead  one  to  believe  that  these  were  the 
worst  dwellings,  old  or  new,  to  be  found  in  that 
neighbourhood,  a  belief  which  would  hardly  be  a 
subject  for  rejoicing.  INloreover,  in  many  of  these 
slum  areas  we  have  persons  of  the  lowest  type 
crowding  together ;  and,  when  this  is  the  case,  it  is 
positively     advantageous    that    these    communities 


I 


328  MUNICIPAL   HOUSE-BUILDING         [chap.  xi. 

should  be  broken  up,  and  that  the  individuals  com- 
posing them  should  be  forced  to  scatter  themselves 
amongst  the  more  reputable  inhabitants  of  the  better 
built  areas.  In  fact,  in  rehousing  operations  con- 
sequent on  the  destruction  of  slums,  the  dehoused 
are  never  largely  rehoused  in  the  new  buildings, 
whatever  be  the  agency  employed  in  their  erection ; 
the  consequent  scattering  of  the  old  communities 
is  in  certain  respects  beneficial ;  and  even  if  it  were 
not  so,  the  facts  disclosed  would  tell  us  little  as  to 
the  relative  merits  of  municipal  and  private  trade.  ^ 
(10)  But  the  difficulties  connected  with  these 
rehousing  operations  have,  nevertheless,  a  very 
important  bearing  on  municipal  trading.  One  of 
the  main  difficulties  is  that  a  loss  must  frequently 
be  incurred ;  a  loss  which  must  be  made  good  out 
of  the  rates.  In  cases  in  which  clearing  opera- 
tions can  be  done  at  a  profit,  the  work  will  often 
be  undertaken  by  private  speculators,  without  the 
aid  of  any  Act  of  Parliament ;  and  it  is  only  where 
a  loss  is  inevitable  that  municipalities  certainly 
must  step  in.  This  loss  may  be  due  to  various 
causes.  Very  often  the  number  of  persons  rehoused 
is  less  than  the  number  dehoused  from  the  same 
area,  and  rents  cannot  be  raised  in  proportion  to 
the  diminution  in  numbers.  Slums  again  are  often 
built  on  leasehold  property,  and,  when  the  leases 
fall  in,  the  private  owners,  if  left  alone,  would  erect 
on  the  cleared  areas  manufactories  or  other  buildings 
which  would  yield  fur  higher  rents  than  the  de- 
stroyed tenements.  This  prospective  increase  of 
value  influences  the  price  wliich  has  to  be  paid  for 
the  land  when  bought  under  the  provisions  of  the 

'  M.T.R.,  Q.  3652. 


CHAP.  XL]  EXPENDITURE   INVOL\'EU  329 

Housing  Acts ;  and,  as  it  is  generally  impossible  to 
get  an  increased  rental  if  workmen's  houses  are 
built  on  the  ground,  the  operation  must  involve  a 
loss.  The  entanglements  of  interests  due  to  the 
fact  that  there  are  many  owners  and  many  leases 
and  sub-leases  terminable  at  different  dates  may, 
perhaps,  make  clearing  operations,  even  if  they 
would  be  profitable,  almost  impossible  except 
under  the  Housing  Acts ;  and  the  full  enhanced 
value  might  never  be  realised  as  long  as  the 
properties  remained  in  private  hands.  But  it  would 
be  difficult  to  reduce  the  price  to  be  given  when 
property  is  compulsorily  purchased  on  this  account 
if  the  valuation  is  to  be  made  in  a  judicial  and 
equitable  manner.  In  fact,  compulsory  rehousing 
operations  must  generally  involve  some  expenditure 
of  public  money.  ^ 

(11)  The  foregoing  conclusion  may  be  stated 
in  a  somewhat  different  manner.  If  what  has 
been  said  is  correct,  much  the  same  results  as  those 
obtained  by  municipal  housing  operations  on  cleared 
areas  would  have  been  obtained  if  the  matter  had 
been  left  to  private  trade,  and  if  Parliament  had 
forced  municipalities  to  offer  bonuses  to  workmen 
to  induce  them  to  live  in  certain  definite  localities 
from  which  they  or  other  workmen  had  been  dis- 
placed. No  greater  burden  would  have  been 
thrown  on  the  rates ;  private  enterprise  would  have 
been  remunerative ;  and  it  would  have  been 
voluntarily  undertaken.  In  Liverpool  it  appears 
that  the  rents  obtained  for  municipal  dwellings  are 
as  much  as  6s.  a  week  a  room,  or  33  per  cent. 
less  than  the  full  commercial  rent  obtainable ; "   and 

^  M.T.R.,  Qs.  2293,  2298,  3652.  ^  j^^;^  Qs,  2277,  2293. 


330  MUNICIPAL   HOUSE-BUILDING         [chap.  xi. 

this  may  be  regarded,  therefore,  as  the  bonus  to 
the  tenant.  One  of  the  most  serious  evil  effects 
of  this  bonus  system  is  that  it  keeps  down  wages. 
Workmen  are  thus  induced  to  refrain  from  moving 
away  into  other  neighbourhoods  ;  the  supply  of  labour 
in  the  crowded  vicinities  is  kept  up ;  and  a  rise  in 
wages,  which  would  otherwise  probably  take  place, 
is  thus  prevented.  Now  there  are  many  who  think 
that  the  most  hopeful  step  towards  solving  the 
housing  problem  in  I^ondon  and  in  other  large  cities 
would  be  to  induce  the  owners  of  manufactories 
to  move  their  establishments  from  the  centre 
outwards.  Those  who  talk  lightly  of  such  an 
undertaking  have  evidently  not  realised  the 
enormous  difficulties  which  would  have  to  be 
overcome  in  the  case  of  large  manufactories.  These 
difficulties  are,  however,  far  less  formidable  in  the 
case  of  trades  not  involving  the  use  of  much  fixed 
plant,  and  something  may  be  done  in  this  direction. 
But  it  is  obvious  that  any  proceeding  tending  to 
keep  down  wages  in  any  district  would  produce 
an  opposite  tendency  to  that  desired  ;  for  it  would 
tend  to  make  manufacturers  less  willing  to  move. 
In  fact  the  letting  of  houses  in  central  crowded 
areas  at  unremunerative  rents  acts  as  the  award 
of  a  bonus  both  to  the  manufacturer  and  to  the 
workman  to  induce  them  to  remain  there  per- 
manently.^ 

(12)  Thus  Parliament  directs  municipalities  to 
clear  away  houses  in  insanitary  areas,  and  to  give 
bonuses  both  to  workmen  to  re- settle  in  these  areas 
and  to  manufacturers  to  maintain  their  manu- 
factories  in  their  vicinity.     This  is  done  in  spite  of 

^  See  Quarterly  Review,  April  1901,  "The  Housing  Question." 


CHAP.  XI.]  SUGGESTED   LEGISLATION  331 

the  fact  that  these  are  usually  the  very  districts 
where  circumstances  most  tend  to  make  human 
beings  herd  together.  Does  this  seem  a  hopeful 
method  of  contending  against  the  evils  arising  from 
the  overcrowding  in  the  centre  of  our  great  cities  ? 
In  answering  this  question  it  must  be  remembered 
that  the  object  which  Parliament  apparently  had 
in  view  in  ordering  these  rebuilding  operations  was 
to  mitigate  the  sufferings  of  those  displaced ;  an 
object  which  is  seldom  satisfactorily  attained.  Does 
not  this  point  to  the  advisability  of  relaxing  the 
obligation  to  rebuild  workmen's  houses  on  the 
cleared  areas  ?  Local  Authorities  should  know 
better  than  Parliament  what  amount  of  suffering  is 
likely  to  result  from  any  proposed  clearing  scheme, 
and  they  should  be  allowed  to  judge  as  to  the 
necessity  of  rehousing  those  displaced. 

(13)  Building  workmen's  houses  at  a  loss  is  a 
very  doubtful  expedient  at  any  time,  and,  if  more 
discretion  were  allowed  to  Local  Authorities,  it 
would  be  less  often  insisted  on.  And  it  is  this 
compulsory  unremunerative  building  which  has  in 
large  measure  caused  municipalities  to  take  up  this 
trade.  The  idea  of  giving  a  bonus  to  private 
builders  is  either  unfamiliar,  or  it  is  thought  to  be 
objectionable  by  those  who  have  not  thoroughly 
considered  the  matter ;  and  the  fact  that  private 
companies  are  unwilling  to  undertake  these  com- 
pulsory rehousing  operations  without  such  a  bonus 
serves  as  an  excellent  popular  argument  for  those 
who  advocate  Municipal  Trade.  Few  of  those  who 
are  told  that  private  trade  is  a  failure  ever  realised 
that  private  proprietors  could  be  induced  to  do  all 
that  is  needed  at   no  greater  financial   disadvantage 


332  MUNICIPAL   HOUSE-BUILDING        [chap.  xi. 

to  the  community  than  that  resulting  from  JNIuni- 
cipal  Trade.  Thus,  if  T^ocal  Authorities  were 
given  greater  freedom  in  the  matter  of  rehousing 
operations,  there  would  probably  be  less  municipal 
house-building. 

(14)  In  the  foregoing  discussion  it  has  been 
tacitly  assumed  that  the  cost  of  housing  operations 
would  be  the  same  whether  the  work  was  done  by 
private  firms  or  by  Local  Authorities.  This  is  not, 
however,  likely  to  be  the  case.  In  the  first  place, 
I^ocal  Authorities  are  much  less  likely  than  private 
owners  to  be  guided  by  the  possibility  of  earning 
the  necessary  rents  when  deciding  on  the  class  of 
house  to  be  built  or  the  accommodation  to  be 
provided.  For  example,  in  cities  given  to  municipal 
enterprise,  the  question  has  arisen  whether  a  hot 
and  cold  water  service  should  be  supplied  all  over 
workmen's  tenements.  "  The  answer  in  earlier  days 
"  was  :  Certainly,  if  the  tenant  is  willing  and  able  to 
"  pay  for  it.  Under  a  municipal  monopoly  this  will 
"  be  settled  by  public  debate  and  impassioned  appeal 
"  to  the  eternal  fitness  of  things."  ^  If  such  influences 
are  at  work,  obviously  they  must  tend  to  make  muni- 
cipal dwellings  dearer  than  those  built  by  private 
firms  in  the  sense  of  being  less  remunerative. 

(15)  But,  even  when  exactly  the  same  results 
are  aimed  at  by  private  and  public  traders,  enterprises 
undertaken  by  the  latter  are  likely  to  be  more  costly. 
Reasons  have  been  given  in  a  previous  chapter  for 
believing  that,  on  the  average,  works  managed  by 
private  proprietors  will  be  less  expensive  than  those 
managed  by  municipalities,  and  these  reasons  are 
all  applicable  to  the  case  of  municipal  house  build- 

^  Quarterly  Review,  April  1901,  p.  447. 


\ 


CHAP.  XI.]  COST  OF  BUILDING  333 

ing.  It  is  not,  therefore,  necessary  to  repeat  them. 
It  may,  however,  be  worth  pointing  out  that 
the  more  the  elected  authorities  take  the  work 
into  their  own  hands  the  greater  will  be  the 
probable  excess  of  expenditure  over  the  private 
trade  standard.  If  directors  are,  as  a  rule,  better 
men  of  business  than  councillors,  they  will  exhibit 
their  superiority  in  their  choice  of  building  sites, 
and  in  their  negotiations  in  connection  with  the 
purchase  of  land.  Thus,  even  in  cases  where 
municipalities  do  no  more  than  buy  estates  and 
let  them  out  or  sell  them  to  private  builders,  the 
gross  profits  are  not  likely,  on  the  average,  to  be 
quite  so  great  as  those  obtained  by  private  companies 
undertaking  exactly  the  same  work  and  managing 
the  whole  business  from  start  to  finish  themselves. 
If  municipalities  keep  more  of  the  management  in 
their  own  hands,  then  more  serious  influences  will 
come  into  play.  INIunicipal  salaries  are,  on  the 
average,  lower  than  those  which  private  firms  Jind 
it  pay  to  give ;  and,  even  where  no  other  municipal 
employees  besides  municipal  architects  and  municipal 
clerks  of  the  works  are  employed,  some  harmful 
results  may  arise  from  the  employment  of  slightly 
less  skilful  officials.  Again,  when  houses  are 
designed  by  municipal  architects  and  then  put  out 
to  contract,  tenderers  from  the  local  go^ernment 
area  electing  the  body  in  whose  hands  the  decision 
rests  are  likely  to  receive  very  favourable  considera- 
tion, a  form  of  "  protection "  which  is  certain  to 
raise  average  prices  and  to  cause  the  work  to  be 
more  costly.  Where  the  work  is  actually  executed 
by  municipalities,  the  excess  of  expenditure  over 
the  private  standard  is,  for  several  reasons,  hkely  to 


334  MUNICIPAL   HOUSE-BUILDING         [chap.  xi. 

be  still  greater.  In  the  first  place,  there  must  be 
periods  during  which  a  works  department  has  little 
or  nothing  to  do,  and  the  fact  that  nmnicipalities  are 
unable  at  such  times  to  tender  like  private  firms  for 
any  ordinary  building  operations  in  the  neighbour- 
hood or  elsewhere  must  make  all  the  enterprises 
undertaken  by  them  more  costly ;  for,  in  addition 
to  a  normal  share  of  the  current  expenses,  a  share 
of  these  expenses  incurred  during  these  idle  or 
partially  idle  times  should  also  be  charged  against 
each  separate  municipal  undertaking.  Then,  again, 
where  no  work  whatever  is  put  out  to  contract,  and 
where  all  the  workmen  are  consequently  municipal 
employees,  the  cost  will  be  considerably  increased 
because,  on  the  average,  the  wages  paid  will  be 
higher,  the  hours  of  work  shorter,  and  the  dis- 
cipline less  strict.  Lastly,  in  these  circumstances, 
the  Local  Authorities  concerned  will  occupy  the 
dual  positions  of  inspector  and  inspected ;  and 
this  must  not  only,  as  has  already  been  pointed 
out,  tend  to  make  the  work  inferior,  but  must  also 
add  to  the  cost ;  for  there  will  be  a  tendency  for 
municipal  borough  engineers,  sanitary  inspectors, 
and  clerks  of  the  works  not  to  point  out  the  short- 
comings of  municipal  architects,  foremen  of  works, 
plumbers,  and  other  employees  as  keenly  as  if  these 
same  men  w^ere  in  private  employment.  In  some 
cases,  in  all  probability,  municipal  housing  opera- 
tions are  conducted  more  economically  and  better 
than  the  work  executed  by  many  private  companies  ; 
but  the  foregoing  are  all  reasons  for  believing  that, 
judged  by  average  results,  private  house-building 
is   less  costly. 

(16)  In  trying  to  ascertain  whether  municipalities 


CHAP.  XI.]  RESULTING   LOSSES  335 

have  made  a  profit  or  a  loss  on  any  of  their  trading 
enterprises,  and  whether  that  profit  or  loss  would 
have  been  greater  or  less  had  the  work  been  as  far 
as  possible  left  in  priv^ate  hands,  it  would,  without 
doubt,  be  far  more  satisfactory  if  we  could  put 
aside  all  abstract  reasoning  like  that  discussed  in 
the  last  paragraph  and  merely  look  to  actual  facts 
and  figures.  I^ittle  thoroughly  reliable  information 
is,  however,  available.  According  to  the  Local 
Government  Board  Return  for  the  four  years  ending 
March  1902,  the  total  capital  provided  by  munici- 
palities for  working-class  dwellings  was  £1,253,592, 
whilst  the  average  gross  profit  was  £16,518.  Judging 
by  these  figures,  municipalities  undertaking  similar 
work  ought  to  expect  to  lose  about  3  per  cent,  on 
the  money  thus  invested  until  the  debts  thus  in- 
curred were  paid  off,  a  conclusion  which,  as  far  as 
it  can  be  relied  on,  confirms  the  belief  that  losses 
on  such  operations  are  inevitable  as  the  law  now 
stands.  But  in  truth  British  experience  has  been 
too  short,  and  the  operations  not  large  enough  to 
afford  any  conclusive  evidence ;  and  many  reasons 
have  already  been  given  for  doubting  the  accuracy 
of  the  figures  contained  in  these  returns  even  when 
they  refer  to  long  established  trades.  One  of  the 
results  of  these  housing  operations  ha\ing  only 
recently  been  initiated  is  that  a  considerable  pro- 
portion of  the  expenditure  incurred  is  probably 
represented  by  unfinished  houses,  thus  making  the 
loss  appear  unduly  gi-eat.  But,  with  regard  to 
other  elements  of  doubt  connected  with  these 
returns,  nearly  all  of  them  make  it  probable  tliat 
the  prospective  loss  indicated  by  them  is  too  small. 
For  example,  when  new  houses  are  let,  the  profits 


336  MUNICIPAL   HOUSE-BUILDING         [chap.  xi. 

are  often  shown  as  being  greater  than  they  should 
be ;  because  the  "  cost  of  repairs  becomes  very 
"great  as  buildings  get  older,"  and  the  amount  set 
aside  for  future  contingencies  is  apt  to  be  too 
small.  ^  As  a  fact,  nothing  whatever  appears  in 
this  return  under  the  heading  of  depreciation  of 
houses,  an  omission  which  may  be  due  to  its 
being  otherwise  entered  in  the  municipal  accounts. 
It  is  not  necessary  to  recapitulate  the  other  reasons 
mentioned  in  chap.  viii.  for  believing  that  these 
statistical  records  give  a  too  hopeful  impression. 
One  special  source  of  error  is,  however,  of  sufficient 
magnitude  to  be  worth  separate  notice.  "  Mr 
"  Wallace  Bruce,  Chairman  of  the  Finance  Com- 
"  mittee  of  the  l^ondon  County  Council,  recently 
"  stated,  in  introducing  his  budget,  that  two  proper- 
"  ties  for  clearance  recently  purchased  for  £240,000 
"  were  valued  for  rental  as  workmen's  dwellings  at 
"£50,000,  the  difference  being  thrown  upon  the 
"  rates."^  Again,  from  the  Times  report  of  the  meeting 
of  the  I^ondon  County  Council  of  20th  November 
1901,  we  learn  that  "the  Improvements  Committee 
"  further  reported  that  the  Council  had  acquired  a  site 
"  in  London  Fields,  Hackney,  for  rehousing  about 
"486  persons  who  would  be  displaced  by  the  JNIare 
"  Street  improvement.  The  value  of  the  land  was 
"  £1250,  but  the  Housing  Committee  could  not  afford 
"  to  pay  anything  for  it,  and,  for  reasons  similar  to 
"  those  in  the  Southwark  case,  the  Improvments 
"  Committee  recommended  the  Council  to  fix  the 
"  value  of  the  land  for  rehousing  purposes  at  m/." 
When   important   items   of  expenditure   are  in  this 

1  M.T.R.,  Qs.  2293,  3708,  Sir  T.  Hughes. 

2  Jour,  of  the  Royal  Stats.  Soc,  June  1901,  p.  207,  Mr  John  F.  J.  Sykes' 
paper. 


CHAP.  XI.]  RESULTING   LOSSES  337 

way  deliberately  entered  in  the  wrong  place,  munici- 
pal accounts  are  worse  than  useless ;  they  are 
positively  misleading.^ 

(17)  It  appears,  therefore,  that  we  cannot  get 
reliable  statistical  evidence  as  to  the  losses  incurred 
by  municipalities  in  their  building  operations.  But, 
even  had  we  been  able  to  get  the  required  informa- 
tion, it  would  not  have  solved  the  problem ;  for,  in 
order  to  compare  the  merits  of  public  and  private 
trade,  we  should,  in  addition,  require  to  know  what 
would  have  been  the  financial  results  of  the  same 
undertakings  if  they  had  been  executed  partly  or 
wholly  by  private  enterprise.  This  latter  half  of 
the  enquiry  is  perhaps  the  more  difficult  of  the  two ; 
for  it  necessitates  estimating  what  would  have  been 
the  cost  of  erecting  tenements  exactly  similar  to 
those  built  by  Local  Authorities  if  the  work  had 
been  entrusted  to  private  enterprise.  The  actual 
cost  of  erecting  buildings  of  probably  somewhat 
different  types  by  private  trade  in  different  places 
would  have  to  be  taken  as  the  basis  for  any  such 
estimate.  The  difficulty  of  comparing  the  cost  of 
supplying  gas  or  electricity  or  of  the  working  of 
tramways  in  different  localities  has  already  been 
noticed ;  and,  although  the  problem  may  be  some- 
what easier  in  the  case  of  house-building,  yet  there 
are  many  elements  to  be  considered  which  are 
difficult  to  allow  for.  Wages  and  the  price  of 
materials  vary  much  in  different  places  and  at 
different  times.  The  value  of  land  and  the 
expenses  connected  with  its  purchase,  and  with 
clearing  operations  generally,  make  all  comparisons 
somewhat  uncertain ;  nor  is  it  easy  to  make  accurate 

1  M.T.R.,  Q.  3652. 

y 


338 


MUNICIPAL   HOUSE-BUILDING        [chap.  xi. 


allowance  for  the  differences  in  the  size  or  the 
construction  of  different  buildings.  In  London, 
where  some  of  the  public  works  are  undertaken 
by  the  JNIunicipal  Works  Department  and  some  by 
private  firms,  the  comparison  between  the  two 
would  at  first  sight  appear  to  present  less  difficulties. 
The  cost  of  any  proposed  dwellings  is  estimated  by 
the  Municipal  Authorities,  and  the  Works  Depart- 
ment has  generally  been  given  the  option  of  under- 
taking the  work  at  that  price.  If  they  "  cannot 
"  build  it  for  the  money,"  then  it  is  put  out  to 
contract.  Thus,  in  this  instance,  as  in  the  case 
of  electrical  undertakings,  the  contractors  only  get 
the  "  leavings,"  and  this  makes  it  almost  impossible 
to  compare  the  financial  results  of  private  trade 
with  the  results  obtained  by  its  more  fortunate 
rival. ^  Nor  does  any  comparison  between  the  rents 
actually  charged  by  municipalities  and  private 
companies  really  enlighten  us  any  more.  The 
following  table  is,  no  doubt  "instructive  as  show- 
"  ing  the  comparative  weekly  rentals  and  the  com- 
"  parative  areas  of  rooms  in  trust  dwellings  and 
"municipal  dwellings  respectively:"^ — 


Peabody  Trust  :— 
Heme  Hill    .     . 

Stamford  St.     . 
(new) 
Guinness  Trust    . 

(latest) 
L.C.C.  (latest)  .    . 

AREA  IN   SQUARE   FEET. 

WEEKLY  RENTS. 

Living 
Rooms. 

Bedrooms. 

One 
Room. 

Two 
Rooms. 

Three 
Rooms. 

153  to  180 

122  to  177 

140  to  150 

154 

117  to  132 

114  to  125 

100  to  126 

97i 

s.    d. 
3    6 

3    0 

2  lOi 

5    0 

s.    d. 
6    0 

5  0 
4    9 

6  6 

to  7s. 

s.    d. 

7  G 

G    6 
5    9 

8  0 
to  9s. 

M.T.R.,  Q.  3725. 


-  Times,  2nd  Ajjiil  1902, 


CHAP.  Ai]      UNRELIABILITY   OF   STATISTICS  339 

Clearly,  if  these  figures  can  be  taken  as  a  guide, 
municipalities  charge  the  higher  rents.  But  the 
London  County  Council's  houses  were  probably 
constructed  at  a  later  date  when  the  cost  of 
building  had  increased  greatly;  and  the  many 
varying  circumstances  make  it  almost  impossible 
to  judge  in  which  case  the  rent  represents  the 
largest  return  on  the  capital  invested.  We  cannot, 
in  fact,  form  any  satisfactory  estimate  of  what 
would  have  been  the  financial  effects  to  the 
tenants  or  on  the  municipal  revenues  had  the 
whole  of  the  work  connected  with  necessary  re- 
housing operations  been  entrusted  to  private  firms. 

(18)  If  accurate  statistical  information  is  not 
available,  it  is  obvious  that  we  must  rely  in  forming 
our  conclusions  on  a  common-sense  consideration 
of  all  the  circumstances  of  the  case.  If  the  house- 
building problem  is  examined  in  this  way,  it 
appears  highly  probable  that  municipal  work  will, 
on  the  average,  be  more  expensive  than  private 
work,  and  more  expensive  in  proportion  to  the 
extent  to  which  the  various  operations  are  under- 
taken by  municipal  employees.  If  this  be  the  case, 
what  is  gained  by  placing  this  work  in  municipal 
hands  ?  Where  the  work  is  necessarily  unremunera- 
tive,  the  award  of  a  bonus  to  private  traders  to 
induce  them  to  undertake  the  work  would  be  a 
cheaper  way  of  getting  it  done  than  entrusting  it  to 
a  Works  Department.  On  the  other  hand,  where 
the  work  can  be  undertaken  at  a  net  profit  by 
municipahties,  an  even  greater  profit  could  be 
secured  to  the  pubhc  by  placing  the  work  in 
private  hands,  suitable  rentals  being  charged.  The 
prospect    of    profit     or    loss    is     perhaps    not    the 


340  MUNICIPAL   HOUSE-BUILDING        [chap.  xi. 

most  important  side  of  the  question  to  hold  in 
view ;  but  whatever  weight  should  be  attached  to 
tlie  financial  results,  that  weight  tells  in  the  balance 
against  municipal  house-building. 

(19)  As  to  the  other  arguments  for  and  against 
this  branch  of  IMunicipal  Trade,  the  advantages 
are  certainly  far  out-weighed  by  the  corresponding 
disadvantages,  the  most  important  of  which  have 
yet  to  be  mentioned.  These  are  the  increased 
probability  of  municipal  corruption,  the  lessened 
probability  of  houses  of  the  required  type  being 
built,  and  the  harmful  indirect  effects  on  private 
trade  which  are  thus  produced.  And  in  consider- 
ing these  objections  it  is  to  be  noted  that  we  are 
not  now  discussing  the  adoption  of  some  completely 
socialistic  system.  It  is  not  necessary  here,  there- 
fore, to  enlarge  on  the  feelings  of  the  workman 
either  when  dissatisfied  with  his  dwelling,  or  when 
evicted,  possibly  because  of  the  non-fulfilment  of 
some  pedantic  municipal  regulation,  should  he 
find  the  municipality  the  sole  landlord  to  whom 
he  could  apply.  The  possibihty  of  civic  tyranny 
in  these  circumstances  is  obvious.  Neither  is  it 
necessary  to  discuss  at  length  either  the  enormous 
municipal  debt  which  would  result  from  a  municipal 
house-building  monopoly,  or  the  deadening  effect 
of  such  universal  State  management.  As  to 
this  latter  point,  governing  bodies,  being  few  in 
number  and  generally  tending  to  become  stagnant, 
are  certain  not  to  meet  the  very  varied  require- 
ments of  the  different  classes  as  satisfactorily  as 
they  can  be  met  when  the  many  competitive 
agencies  of  private  trade  are  free  to  endeavour  to 
meet  the    many  demands   made   on   them.     Muni- 


CHAP.  XL]  NUMBER   OF   HOUSES  341 

cipalities  have  frequently  given  satisfaction  in  the 
supply  of  gas  and  water ;  but  the  gas  and  water 
supplied  in  each  locality  are  only  of  one  kind ; 
whereas,  not  only  are  there  a  great  number  of 
different  types  of  houses  required,  but  the  types 
are  constantly  varying.  "When  an  improvement 
"is  suggested  to  the  authority  which  has  secured  a 
"monopoly  of  building,  it  will  say  that  the  scale  of 
"  accommodation  has  been  carefully  considered,  and 
"that  the  Council  sees  no  necessity  for  an  altera- 
"tion  of  the  estimates  and  sanitary  rules  laid  down 
"  by  its  thoroughly  competent  staff  of  surveyors  and 
"officers  of  health."^  These  considerations  indicate 
that  very  harmful  results  would  follow  even  if  only 
one  class,  the  working  class,  were  to  a  large  extent 
housed  by  elected  bodies  ;  whilst,  for  all  these  reasons, 
the  effect  of  the  universal  municipal  ownership  of 
dwelling-houses  would  be  appalling. 

(20)  Here  we  are  chiefly  dealing  with  such  partial 
house-building  operations  as  are  being  actually  under- 
taken by  a  few  great  cities,  London  amongst  others. 
These  operations  are,  as  we  have  seen,  of  two 
kinds :  those  undertaken  under  statutory  requirements 
on  areas  from  which  insanitary  houses  have  been 
cleared ;  and  those  voluntarily  undertaken  for  the 
sake  of  providing  additional  house  accommodation. 
As  to  the  latter  class,  we  have  seen  that  public 
bodies  are  as  a  rule  very  cautious  in  financial 
matters,  and  such  operations  will,  therefore,  only 
be  undertaken  where  there  is  little  risk  of  the 
houses  lying  empty  for  long.  A  few  spasmodic 
efforts  may  be  made  by  municipalities  in  the 
direction  of  a  bold  house-building  policy  in  suburban 

'  Quarterly  Review,  April  1901,  p.  446. 


342  MUNICIPAL  HOUSE-BUILDING        [chap.xi. 

areas,  a  policy  which  is  the  one  probably  most 
conducive  to  relieving  the  over-crowding  of  the 
central  districts ;  but,  as  a  rule,  private  enterprise 
will  be  far  more  progressive  where  there  is  any 
risk.  But  private  enterprise,  even  though  on  the 
whole  more  progressive,  will  in  all  circumstances 
be  seriously  checked  by  any  competition  or 
threatening  of  competition  by  I^ocal  Authorities. 
Such  competition  is  not  conducted  on  even  terms, 
the  municipalities  having  such  vast  resources  at 
their  call.  There  is  no  certainty  that  elected 
bodies  will  charge  commercial  rents,  and,  if  they 
do  not  do  so,  their  houses  will  draw  away  tenants 
from  their  private  rivals,  even  where  the  rents 
charged  are  as  low  as  possible.  In  this  way  the 
difficulty  of  the  already  difficult  problem  of  making 
the  building  of  workmen's  houses  a  remunerative 
operation  is  increased,  and  capital  does  not  flow  as 
readily  as  it  otherwise  would  do  in  this  direction. 
The  consequences  are  obvious,  and  "  every  one," 
writes  Miss  Octavia  Hill  in  a  letter  to  the  Times, 
"  who  knows  about  the  matter  is  aware  that  the 
"  good  building  companies  and  the  good  builders  are 
"not  proceeding  to  meet  the  need  of  dwellings  as 
"they  were  doing  before  municipal  action  was  tr.^ked 
"  of;  their  work  has  been  arrested."^  It  has  been  esti- 
mated that  "  London  Municipal  Authorities  within 
"  the  last  fifty  years  have  constructed  dwellings 
"  containing  6132  rooms,  and  that,  within  the  same 
"  period,  trusts,  associations,  and  companies  in  London 
"  have  constructed  dwellings  containing  50,402 
"  rooms."  ^     Private  enterprise  has  done  vastly  more 

^  Jour,  of  the  Royal  Stats.  Soc,  December  1901,  i).  570. 
2  Ibid.,  June  1901,  p.  201. 


.HAP.  XI.]  CORRUPTION  34S 

ork  even  in  London  than  municipal  enterprise ; 
private  enterprise  has  been  checked ;  and,  in 
Lord  Avebury's  opinion,  "there  can  indeed  be 
"Httle  doubt  that  there  are  fewer  workmen's  dwell- 
"  ings  now  than  there  would  have  been  if  the 
"municipalities  had  not  built  any."^ 

(21)  Lastly,  we  have  to  consider  the  general 
effect  of  municipal  house-building  on  municipal 
life.  There  can  be  little  doubt  that  such  opera- 
tions induce  Local  Authorities  to  study  the  wants 
of  the  working  classes,  and  that  some  beneficial 
results  will  thus  be  produced.  But  arguments 
were  set  forth  at  length  in  chap.  v.  to  prove  that 
any  great  addition  to  the  amount  of  work  thrown 
on  municipal  bodies  tends,  on  the  whole,  both  to 
lower  their  average  business  capacity,  and  to  lessen 
the  amount  of  attention  paid  to  their  primary 
duties ;  and  these  arguments  all  apply  to  municipal 
housing  operations  if  extensively  undertaken.  The 
same  may  also  be  said  of  the  reasons  already  adduced 
in  support  of  the  belief  that  municipal  corruption 
is  less  easily  eradicated  in  proportion  to  the  number 
of  voters  in  the  pay  of  the  municipality.  But  there 
is  in  addition  a  special  and  very  serious  objection 
to  municipal  house-oivning  on  the  grounds  of  the 
corrupt  influences  thus  likely  to  be  brought  into 
play.  Lord  Rosebery  is  reported  to  have  spoken 
of  the  "wise  discrimination  in  refusing  tenants  who 
"  offered  much  more  than  the  rents  "  which  a  certain 
Local  Authority  was  prepared  to  accept.-  Vi'^here 
there  are  an  "  enormous  number  of  people  who  are 
"  always    watching    the    rebuilding "    operations    on 

^  Jov,r.  of  the  Eoyal  Stats.  Soc,  December  1901,  p.  570. 
2  M.T.R.,  Q.  1568. 


344  MUNICIPAL   HOUSE-BUILDING        [chap.  xi. 

cleared  areas  witli  the  view  of  getting  accommoda- 
tion for  themselves,  is  it  likely  that  this  "  wise 
"  discrimination  "  will  always  be  used  by  the  "  special 
"  sub-committee "  of  a  body  sharply  divided  on 
political  lines  without  any  reference  whatever  to 
the  political  leanings  of  the  applicants  ?  ^  Political 
corruption  of  the  worst  kind  is  almost  certain  to 
arise  before  long  in  these  circumstances.  There 
may  be  comparatively  few  municipal  tenants  at 
present  in  any  one  city ;  but  these  few  are  often 
concentrated  in  certain  wards,  and  their  votes 
would  certainly  be  worth  the  trouble  of  a  Uttle 
political  "discrimination."  It  is  hardly  possible  to 
overrate  the  danger  to  our  hitherto  nearly  un- 
spotted civic  purity  wliich  must  arise  from  muni- 
cipal housing  operations  on  a  large  scale,  especially 
if  the  liouses  are  owned  and  not  sold. 

(22)  The  arguments  for  and  against  Municipal 
Trade  as  they  are  applicable  to  municipal  housing 
operations  have  here  been  summarised  as  an  example 
of  the  way  in  which  the  municipalisation  of  each 
trade  should  be  considered  before  a  decision  is 
reached.  The  conclusion  arrived  at  in  this  case  is 
that  a  certain  amount  of  experimental  house-build- 
ing, necessitating  the  employment  of  no  municipal 
employee  other  than  the  municipal  architect,  may, 
in  certain  circumstances,  be  very  useful.  As  to 
ordinary  municipal  housing  operations,  they  will 
probably  stimulate  the  public  bodies  concerned  in  a 
beneficial  manner  to  consider  more  in  detail  the 
needs  of  the  working  classes ;  but,  on  the  other 
hand,  these  needs  can  be  as  well  or  better  met, 
and  at  less  cost  by  private  trade ;   extensive  build- 

^  M.T.R.,  Q.  2273. 


I 


CHAP.  XL]  CONCLUSIONS  345 

ing  operations  undertaken  by  Local  Authorities  will 
certainly  lessen  the  work  done  by  private  building 
companies  in  a  most  injurious  manner ;  and  the 
ownership  of  houses  by  public  bodies  will  add 
greatly  to  the  chances  of  corruption.  Balancing 
these  arguments,  it  appears  that,  as  regards  housing 
operations,  a  particularly  strong  case  can  be  made 
against  this  work  being  largely  entrusted  to  munici- 
pal employees. 


Xll 

LEGISLATION     WITH     REFERENCE     TO     MUNICIPAL 

TRADE 

(1)  It  has  been  seen  that  both  municipal  and  private 
trades  are  productive  of  harmful  results,  and,  before 
a  final  judgment  can  be  made  as  to  the  general 
pohcy  which  it  would  be  wise  to  adopt  in  future, 
it  is  necessary  to  discuss  how  far  it  is  possible  to 
safeguard  against  these  evils.  Not  merely  should 
we  compare  INIunicipal  Trade  with  private  trade  as 
they  are  seen  to-day ;  but  we  should  consider 
what  legislation  is  advisable  in  the  case  of  both 
kinds  of  industry,  and  we  should  compare  a  reformed 
municipal  trade  with  a  reformed  private  trade.  Space 
makes  it  impossible  to  discuss  fully  all  the  questions 
which  thus  arise,  and  what  is  here  said  must  be 
merely  taken  as  suggestions  of  possible  lines  of 
advance  rather  than  as  definite  proposals  for  reform. 
(2)  Taking  JNIunicipal  Trade  first,  it  is  necessary, 
before  dealing  with  possible  legislation  to  make 
certain  general  enquiries  as  to  what  profits,  if  any, 
should  be  made  by  public  bodies  out  of  trading 
enterprises.  "  Where  there  is  no  monopoly  there 
"is  clearly  no  reason  why  the  profit  should  be  re- 
"  stricted  by  anything  except  competition,  or  the 
"  fear  of  competition."  ^      But  with  monopolies  this 

^  Economic  Journal,  March  1889,  Edwin  Caiman,  p.  8. 

346 


CHAP.  XII.]  SINKING  FUNDS  347 

is  not  the  case,  and,  as  profits  obviously  depend  on 
prices,  the  first  question  to  be  discussed  is  the  scale 
of  prices  which  municipahties  ought  to  charge  for 
goods  supphed  by  them  in  such  industries.  Accord- 
ing to  the  normal  method  of  conducting  Municipal 
Trade,  the  Local  Authority  concerned  buys  or 
builds  gas-works,  for  example,  out  of  moneys 
raised  by  loan,  and,  at  the  same  time,  makes 
arrangements  for  paying  off  the  debt  thus  in- 
curred within  a  given  period.  The  debt  may 
either  be  paid  off  gradually  by  instalments,  or  a 
sinking  fund  may  be  allowed  to  accumulate  until 
it  is  large  enough  to  pay  off  the  whole  debt  at  one 
blow,  as  it  were.  Let  it  be  assumed  for  the  sake 
of  simplicity,  and  not  because  it  is  necessarily  the 
best  system,  that  the  sinking  fund  plan  is  adopted, 
and  let  our  enquiry  be  as  to  the  scale  of  prices 
which  should  be  charged,  in  the  first  place,  during 
the  debt  redemption  period,  and,  in  the  second 
place,  after  the  whole  debt  has  been  paid  off.  In 
the  case  of  a  loan  being  paid  off  by  instalments, 
the  arguments  here  used  would  still  generally  hold 
good ;  though  the  change  from  one  state  of  things 
to  the  other  would,  no  doubt,  be  gradual  and  not 
sudden. 

(3)  In  these  days  little  need  be  said  in  order  to 
show  the  necessity  for  the  establishment  of  such 
sinking  funds.  In  every  municipal  trade  there 
must  be  some  risk  of  a  loss  being  incurred,  a  loss 
which  may  have  to  be  made  good  out  of  additional 
taxation ;  and  this  risk  in  some  cases  is  very  consider- 
able. If  loans  for  municipal  trading  purposes  were 
raised  like  commercial  debentures,  the  profits  and 
assets  of  the  trade  in  question  being  the  sole  security, 


348  SUGGESTED  LEGISLATION  [chap.  xii. 

no  risk  would  be  thrown  on  ratepayers  as  such.  But 
pubhc  loans  cannot  be  raised  in  this  way ;  for  sub- 
scribers would  never  come  forward  with  their 
money  unless  they  were  granted  powers  somewhat 
similar  to  those  which  enable  shareholders  to 
nominate  their  directors ;  unless,  that  is,  it  were 
possible  for  the  bondholders  to  nominate  the  Town 
Council.  Such  an  arrangement  being  out  of  the 
question,  loans  must  be  raised  in  such  a  way  as 
to  throw  a  risk  on  the  ratepayers ;  a  risk,  the 
responsibility  for  which  rests  primarily  with  those 
ratepayers  who  had  the  right  to  vote  when  the 
Council  which  contracted  the  loan  was  elected.  It 
is  true  that  every  such  ratepayer,  provided  that  he 
possesses  no  real  property  in  the  district,  may  at 
once  escape  all  further  responsibility,  either  volun- 
tarily by  leaving  the  district,  or  involuntarily  by 
death ;  a  point  which  indicates  an  objection  to  all 
such  loans.  But  the  majority  will  remain  as  rate- 
payers in  the  district  for  some  time,  and  it  is 
obviously  their  duty  to  see  that  the  burden  of  the 
risk  thrown  on  irresponsible  newcomers  is  not  un- 
duly heavy  and  that  none  is  thrown  on  posterity. 
In  short,  steps  should  always  be  taken  to  insure 
the  gradual  redemption  of  loans  raised  on  the 
security  of  all  real  property  in  the  district. 

(4)  13ut  should  the  price  paid  for  goods  made 
by  municipalities  cover  these  charges  for  sinking 
funds  as  well  as  the  cost  of  manufacture  ?  In 
England  the  price  paid  by  householders  for  water, 
or  the  water-rate,  is  levied  on  somewhat  the  same 
basis  as  ordinary  rates ;  and  it  would  make  but 
httle  difference  if  the  whole  cost  of  this  service, 
sinking  fund  and  all,  were  included  in  the  ordinary 


CHAP.  511]  SINKING   FUND   CHARGES  349 

municipal   expenditure.     In   the   case   of  baths  and 
wash-houses,      the     price     paid     by     the     users     is 
frequently   insufficient  to   cover   all   the   costs,   and 
the   difference   has   to   be   made   good    out    of   the 
municipal  treasury.     Even  if  the  whole  cost  of  the 
sinking  fund   were   thus    thrown    on    the    ordinary 
ratepayer,    such   an    imposition    might    perhaps    be 
justifiable   on   the   ground   that   the   whole  body  of 
the     ratepayers     are     beneficially     affected    by    the 
increased   health   and   cleanliness    of    a    fraction    of 
their  number  resulting  from  cheap  bathing  facilities. 
But,  putting   aside  these  exceptional  cases,  is  there 
any   reason  why  any  ratepayer  should  be  forced  to 
pay    anything    to    a    municipality    on    account     of 
goods   he   has   never   received  ?     Ratepayers   do  not 
all   use   gas,    for   example ;    and    those   who   do   not 
use  it  may  be  rich  or  poor.     It  is  illegitimate  from 
the   point   of  view  of  taxation  to  fine  the  rich  man 
because  he  is   rich.     "It   is   equally   illegitimate   to 
"  charge  a  poor   ratepayer   for  a   benefit   which    he 
"  demonstrably  does  not  receive." '     And  both  these 
illegitimate   acts  must   be  committed  if  ratepayers, 
as    such,    are     forced     to    contribute    in    any    way 
towards  the   creation  or  maintenance  of  any  muni- 
cipal  trade   which  is  not  justifiable  on  the  grounds 
of  the  benefits  received  from  it  by  the  general  public. 
Thus    the    price    charged    should    cover    all    costs, 
including     sinking     fund    charges ;    and    from    this 
conclusion   we  arrive  at  a  lower  limit  to  the  prices 
which   should   be   charged   by   municipalities  in  the 
case   of  municipal   trades    which    tend    to    become 
monopolies. 

(5)  Thus   we   see   that   there    are    solid    reasons 

>  Economic  Journal,  June  1901,  Prof.  W.  Smart,  p.  179. 


f 


350  SUGGESTED   LEGISLATION  [chap.  xii. 

against  allowing  ordinary  municipal  trades  to  be- 
come a  burden  on  the  ratepayer.  But  is  there  any 
objection  to  allowing  municipalities  to  make  net 
profits  out  of  such  enterprises,  net  profits  which 
would  go  to  swell  the  public  revenues?  If  prices 
are  raised  above  a  certain  level,  the  result  is  similar 
to  the  imposition  of  a  tax  on  the  goods  supplied  ; 
and  whether  this  is  objectionable  or  not  depends 
primarily  on  whether  the  goods  in  question  form 
a  suitable  or  unsuitable  subject  for  taxation.  If 
water  were  sold  by  quantity,  it  would  be  one  of 
the  worst  possible  subjects  for  taxation,  because  any 
imposition  would  tend  to  reduce  the  quantity  used ; 
but,  as  it  can  hardly  be  said  to  be  sold  at  all  to 
ordinary  householders,  no  very  important  question 
as  to  its  taxation  arises.  As  to  the  other  goods 
usually  sold  by  municipalities,  such  as  gas, 
electricity,  and  tramway  locomotion,  they  are 
none  of  them  very  suitable  subjects  for  taxation. 
But  the  revenue  must  be  raised  somehow ;  and, 
as  there  may  be  no  other  less  objectionable 
methods  of  taxation  available,  perhaps  no  great 
objection  from  this  primary  point  of  view  can  be 
raised  against  a  very  moderate  income  being  drawn 
by  municipalities  from  these  sources. 

(6)  But  other  considerations  besides  these 
primary  ones  have  to  be  held  in  view  when  we 
are  dealing  with  municipal  trades  subject  to 
direct  or  indirect  competition ;  that  is,  in  the 
case  of  all  industries  except  that  of  domestic  water 
supply.  It  is  true  that  if  a  municipality  could 
impose  the  same  tax  on  the  goods  made  by  its 
competitors  as  it  can  on  the  goods  made  by  itself, 
no   other   question   besides  the   suitability   of  these 


CHAP,  xii]  LIMITS  OF   PRICES  351 

goods  for  taxation  would  have  to  be  considered. 
But  English  municipalities  cannot  act  in  this  manner, 
and  any  tax  imposed  on  their  own  products  will 
have  the  effect  of  restricting  their  sales,  whilst  no 
such  restriction  is  placed  on  the  sales  of  their  com- 
petitors. If  the  price  of  the  gas  made  by  a  muni- 
cipality, is  raised  so  as  in  effect  to  impose  a  tax 
upon  it,  the  amount  manufactured  will  inevitably 
be  diminished ;  because  the  sale  of  untaxed  oil,  its 
indirect  competitor,  will  inevitably  be  increased. 
No  doubt  any  increase  of  revenue  thus  made  by 
the  Local  Authorities  concerned  would  go  to  the 
reduction  of  taxation ;  but  the  extra  expense 
thrown  on  the  community  in  consequence  of  the 
use  of  an  increased  quantity  of  untaxed  and  nor- 
mally more  costly  commodities  would  in  all 
normal  cases  more  than  outweigh  the  benefits 
thus  received ;  and  the  net  result  would  be  an 
economic  loss  to  the  community.  But  it  should 
hardly  be  necessary  to  point  out  the  unwisdom 
of  municipalities  taxing  their  own  products  in  such 
a  way  as  to  "  protect "  their  rivals ;  a  proceeding 
equally  opposed  to  the  tenets  of  protectionists  and 
free  traders. 

(7)  Thus,  on  the  one  hand,  prices  should  not 
be  so  high  as  to  amount  to  more  than  a  very 
moderate  indirect  tax  on  the  goods  supplied  by 
Local  Authorities ;  whilst,  on  the  other  hand,  prices 
should  not  be  so  low  as  to  throw  any  burden 
whatever  on  the  unbenefited  ratepayer.  But 
besides  this  latter  reason  for  regarding  prices  below 
a  certain  level  as  being  objectionable,  such  low 
prices  may  in  effect  amount  to  the  payment  of 
a   bounty   to   the  consumer  out  of  funds  raised  by 


352  SUGGESTED   LEGISLATION  [chap.  xir. 

general  taxation.  If  the  price  of  the  goods  supplied 
by  Local  Authorities  is  below  the  price  at  which 
they  could  have  been  obtained  from  private  pro- 
prietors, and  if  the  result  is  a  loss  which  has  to 
be  made  good  out  of  taxation,  the  consumer  gets 
what  he  could  not  get  without  the  intervention 
of  the  municipality,  and  the  ratepayer  pays  an 
additional  sum  in  rates  which  he  would  not  other- 
wise pay.  This  is  in  fact  a  bounty  to  the  consumer, 
and  bounties  can  easily  be  shown  to  be  objection- 
able. For  example,  if  a  municipality  had  owned 
gas-works  before  the  introduction  of  electric  tram- 
ways, and  if  these  works  had  been  largely  subsidised 
out  of  any  public  funds,  very  low  prices  might 
have  been  charged  for  gas,  with  the  result  that 
the  erection  of  electrical  works,  and,  consequently, 
the  introduction  of  electrical  tramways,  might  have 
been  delayed  or  stopped.  The  disadvantages  of 
the  absence  of  electric  tramways  and  of  the  in- 
creased taxation  resulting  from  the  low  municipal 
gas  rates  would  in  all  probability  have  more  than 
outweighed  the  advantages  of  cheap  gas.  In  some 
rare  instances  it  would  probably  be  economical 
to  kill  one  trade  in  order  to  make  another 
more  prosperous ;  and,  when  this  is  the  case, 
the  award  of  a  bounty  would  act  beneficially.  But 
these  exceptions  to  the  normal  rule  are  so  rare, 
and  the  danger  of  opening  such  a  door  so  great, 
that  it  is  practically  ffir  wiser  to  neglect  them 
altogether.  It  may,  therefore,  safely  be  declared 
that  bounties  are  uneconomical,  and,  as  a  conse- 
quence, that  prices  should  not  be  so  low  in  muni- 
cipal trades  as  to  throw  a  burden  on  the  ratepayer, 
not   only  because   the   ratepayers  would  not   all  be 


CHAP.  XII.]  LIMITS   OF   PRICES  353 

benefited  in  this  way,  but  also  because  the  result 
would  be  in  effect  the  award  of  a  bounty  to 
consumers. 

(8)  Thus  both  indirect  taxation  and  bounties 
are  objectionable  because  they  have,  as  a  rule,  the 
effect  of  allowing  the  more  costly  product  to  have 
an  undue  advantage  in  the  market.  This  is  the 
result  we  wish  to  avoid ;  and  if  a  municipality 
producing  the  same  goods  as  a  private  trader, 
and  producing  them  at  the  same  cost,  is  not  to 
have  an  undue  advantage  or  be  put  to  an  undue 
disadvantage,  the  goods  made  in  the  two  cases 
must  be  sold  at  the  same  price.  If  a  municipality 
sells  at  a  slightly  lower  price,  it  may  unduly  dis- 
place privately  made  goods,  even  though  they 
are  slightly  superior  in  quality.  If,  on  the  other 
hand,  a  municipality  sells  at  slightly  higher 
prices  than  the  competing  private  traders,  the 
latter  may  find  themselves  slightly  "protected," 
even  though  their  goods  are  inferior.  Thus  we 
arrive  at  the  rule  that,  if  the  cost  of  the  pro- 
duction of  goods  in  public  and  in  private  trade  is 
the  same,  the  prices  should  be  the  same.  The  fore- 
going arguments  with  reference  to  directly  com- 
petitive trades  are  also  applicable  with  but  slight 
modification  to  indirectly  competitive  trades ;  and 
it  appears,  therefore,  that  in  all  municipal  trades 
(again  excepting  domestic  water  supply)  the  price  of 
goods  should  bear  the  same  proportion  to  the  cost 
of  production  as  is  the  case  in  private  trade. 

(9)  Unfortunately  this  rule,  though  simple  in 
form,  is  not  easy  to  apply ;  and  amongst  other 
difficulties  which  have  to  be  discussed  are  those 
connected  with  rents.     Private  tramway  companies, 


354  SUGGESTED   LEGISLATION  [chaj>.  xii. 

for    example,    often    pay    large    sums    annually   to 

Local  Authorities  for  the  privilege  of  running   cars 

on   certain   routes ;   and,  when   these   tramways   are 

municipalised,  the  question  arises  whether   the   rent 

which   the    Local   Authority   may  then   be   said   to 

pay  to  itself  should    any   longer   be    included   as  a 

part  of  the  cost  of  the  tramway  service.     To  answer 

this  question  we  should,  in   the  first   place,    enquire 

whether  sums  paid  to  the  State  by  public  companies 

owning    monopolies    should    generally   be    regarded 

as  indirect  taxation  imposed  on  the  goods  made  by 

them  or  as  rents  paid  for  the  privileges  accorded  by 

the  State.      Let  it  be  assumed  for  the  purposes  of 

this   enquiry   that   there   are    a    number   of    candle 

manufacturers  in  indirect  competition  with  a  number 

of  oil  vendors.     Now  if  the  State  were  to  approach 

the  existing  candle  manufacturers  and  oflfer  to  give 

them  a  complete  monopoly  of  the  trade  in   candles 

on  condition  that  they  would  pay  annually  a  certain 

sum   for   this   privilege,  in   all   probability  the  oifer 

would  be  jumped  at.     But  would  this  payment   be 

a  rent   or   a   tax  ?     If  it  was   the   intention  of  the 

candle  manufacturers  to  amalgamate  and  to  continue 

to  sell  their  goods  at  the  same  price  as   heretofore, 

they   certainly  might   hope   to   increase   their  gross 

profits     by    making     those     economies     which     are 

nearly    always    possible   when    amalgamations    take 

place ;  and,  foreseeing  these  increased   gross   profits, 

they   would   be   willing   to   pay  a   certain   rent   not 

hitherto  paid.     There  is  always  waste  in  competition, 

and  if  the  sum  paid  to  the  State  merely  represented 

the  saving  due  to  the  abohtion  of  this  waste,  it  could 

hardly  be  called  a  tax.     The  State  would  gain ;   no 

undue  advantage  would  be  given  to  inferior  goods ; 


CHAP.  XII.]        RENTS   PAID   BY   COMPANIES  355 

and  no  objection  could  be  raised  against  this 
payment  on  such  grounds.  But  the  candle  manu- 
facturers would  in  all  probability  raise  their  prices 
somewhat,  a  policy  which  might  result  in  increased 
gross  profits,  even  though  there  was  a  diminution 
in  the  sale  of  candles  and  an  increase  in  the  sale 
of  oil.  Thus,  if  permitted  to  raise  prices,  they 
would  be  willing  to  pay  a  larger  sum  to  the 
State ;  and  any  additional  sum  paid  by  them  in 
these  circumstances  must  be  regarded,  not  as  a  rent, 
but  as  a  tax  on  candles.  The  candle  manufacturers 
would  be  constituted  as  tax  -  gatherers,  and  the 
amoimt  they  would  be  willing  to  pay  would  de- 
pend, amongst  other  things,  on  the  amount  of  the 
tax  or  increase  of  price  of  candles  they  were  allowed 
to  impose.  Thus  of  the  total  sum  paid  by  the 
candle  manufacturers,  part  might  be  described  as 
rent  for  the  privileges  granted,  and  part  as  an  in- 
direct tax  levied  on  candles. 

(10)  On  similar  grounds  the  sums  which  tramway 
companies  are  willing  to  pay  to  municipalities  should 
be  regarded  partly  as  rents  for  the  privilege  of  having 
no  direct  rivals,  and  partly  as  taxation  on  loco- 
motion. If  the  trade  is  in  any  case  bound  to 
become  a  monopoly,  the  former  is  unobjectionable, 
the  latter  is  not.  No  part  of  the  sums  paid  sliould 
be  regarded  as  rents  for  the  privilege  of  going 
through  the  streets ;  for  omnibus  proprietors,  the 
chief  rivals  of  tramway  companies,  pay  no  such 
rents.  Both  tramway  and  omnibus  companies  pay 
the  highway  rates  ;  tramways  usually  pay  in  addition 
the  extra  cost  of  putting  down  their  lines ;  and  on 
economic  gi'ounds  either  neither  party  should  be 
called  on  to  pay  any  other  tax,  whether  concealed  in 


356  SUGGESTED   LEGISLATION  [cnvr.  xii. 

the  form  of  rent  or  not,  or  both  parties  should  pay  it. 
Surprise  is  sometimes  expressed  at  the  amount  of 
rent  which  tramway  companies  are  wilhng  to  pay ; 
but  such  surprise  should  vanish  when  it  is  perceived 
that  the  scale  of  prices  permitted  in  tramway 
concessions  may  include  a  tax  on  locomotion  which 
the  companies  merely  undertake  to  gather.  The 
fact  that  companies  are  willing  to  pay  large  sums 
is  absolutely  no  proof  that  it  is  wise  to  make  them 
pay  such  rents  ;  that  is  to  levy  such  indirect  taxation 
in  such  a  manner.  In  fact,  if  the  foregoing  argu- 
ments are  sound,  high  rents  should  never  be  levied 
from  companies  owning  concessions,  reductions  in 
prices  or  fares  being  insisted  on  in  lieu  thereof 

(11)  It  is  obvious  that  it  makes  no  difference, 
from  an  economical  point  of  view,  whether  the 
managers  of  tramways,  who  pay  rent  to  I^ocal 
Authorities,  are  private  companies  or  the  Local 
Authorities  themselves.  The  question  of  rent  is 
not  affected  by  municipalisation ;  and  it  follows  that, 
if  it  is  not  intended  to  tax  goods  supplied  by  public 
bodies,  the  amount  of  rent  which  should  be  included 
in  the  cost  of  production  of  municipal  trades  should 
not  be  more  than  the  saving  which  it  may  be 
supposed  could  have  been  made  by  private  com- 
panies on  account  of  economies  arising  from  the 
prohibition  of  all  direct  competition  if  the  works 
had  not  been  municipalised.  If  a  rent  larger  than 
this  sum  be  included  in  the  costs  of  municipal 
trades,  the  additional  sum  obtained  from  the  public 
to  cover  this  additional  cost  will  be,  in  fact,  a  tax 
on  the  goods  sold,  the  municipality  being  the  tax- 
gatherer.  Unfortunately,  these  considerations  are 
excessively   vague,   and    they   merely  point    to   the 


CHAP,  xii]  RATE   OF  INTEREST  357 

inadvisability  of  Local  Authorities  drawing  more 
than  very  moderate  rents  from  their  commercial 
enterprises.  Beyond  this,  all  that  can  be  said  is 
that,  if  a  municipality  makes  its  trading  enterprises 
pay  to  itself  exactly  the  same  rent  that  it  would 
have  extracted  from  private  companies  under  a 
system  of  private  trade,  it  follows  that  in  this 
respect  Municipal  Trade  is  no  better  and  no  worse 
than  private  trade.  But  municipalities,  in  fact, 
never  show  any  rent  as  chargeable  against  their 
municipal  tramways  or  other  enterprises ;  and  these 
arguments  must  therefore  be  held  to  apply  to  such 
portion  of  their  gross  profits  as  ought  to  be  regarded 
as  rents  payable  to  themselves. 

(12)  The   advocates    of    ^lunicipal    Trade    have 
claimed  that  the  cost  of  production  can  be  reduced 
by  public  management  because  of  the  low  rate  of 
interest  charged  on  municipal  loans,  and  that  prices 
can  therefore  be  reduced  without  injury  to  any  one. 
This    question    has    already    been     discussed.      In 
chap.   vii.   it  was   seen   that  a  priori  reasoning  led 
to  the  conclusion  that,  if  Local  Authorities  charge 
the   same   prices   as    private    proprietors,   the    gains 
would  probably  be  on  the  average  insufficient  to  cover 
any  of  the  annual  repayments  of  principal ;  and  fi'om 
this  it  would  follow  that  on  municipalisation  prices 
must  be  raised,  not  lowered,  if  no  additional  charge 
is   to   fall   on  the   unbenefited  ratepayer.     In  chap, 
viii.  it  was  seen  that  the  English  Local  Government 
Board    Returns    present    the    results    of  INIunicipal 
Trade   in   too   favourable   a   light ;    but    that,   even 
thus    viewed,    it    appears    that    the    average    gross 
receipts   are    only   sufficient    to    cover    the    annual 
repayments  of  principal   because    part   of  the   debt 


358  SUGGESTED   LEGISLATION  [chap.  xii. 

has  been  redeemed.  To  absorb  the  net  profits  now 
actually  made  by  English  municipal  undertakings 
by  a  reduction  of  prices  would  be  to  expend,  in 
the  distribution  of  bounties  to  the  consumers  of 
certain  goods,  the  interest  on  a  fund  which  the 
ratepayers  have  accumulated  out  of  the  proceeds  of 
additional  taxation.  No  doubt  there  are  some 
industries  in  which  the  gross  profits  are,  and 
always  have  been,  sufficient  to  cover  the  repay- 
ments of  principal  and  to  leave  a  net  profit 
available  for  some  public  purpose.  But  this  net 
profit  should  not  be  absorbed  by  a  reduction  in 
prices  to  below  the  level  charged  in  private  trade, 
because  it  should  be  regarded  as  a  fund  available 
to  cover  the  losses  which  must  be  made  in  other 
municipal  enterprises.  Thus  neither  theory  nor 
statistics  give  any  encouragement  to  the  idea  that 
prices  can  be  reduced  in  municipal  trades  because 
of  the  low  rate  of  interest  charged  on  municipal 
loans. 

(13)  Again,  it  has  been  urged  that  the  higher 
rate  of  wages  paid  in  INIunicipal  Trade  necessitates 
and  justifies  a  higher  cost  of  production  than  that 
obtaining  in  private  trades.  But,  if  this  be  so, 
prices  must  tlien  be  higher  in  municipal  trades 
than  in  private  trades ;  and,  in  that  case,  any  in- 
crease of  wages  above  the  normal  level  will  amount 
to  the  payment  of  bounties  to  certain  workmen 
out  of  the  public  funds.  Even  if  it  were  possible 
to  imagine  a  reason  why  such  bounties  should  be 
given,  there  can  be  no  reason  whatever  why  the 
taxation  necessary  to  enable  them  to  be  paid 
should  fall  entirely  on  the  goods  made  by  the 
municipality  itself.      In  fact,  when  it  is  seen  that 


CHAP,  xir]  NET   PROFITS  359 

any  increase  of  municipal  wages  above  the  normal 
level  might  just  as  equitably  be  paid  out  of 
general  taxation,  it  will  generally  be  agreed  that 
such  a  higher  rate  of  wages  should  not  be  paid. 

(14)  No  very  clear  light,  it  must  be  admitted, 
has  been  thrown  on  the  question  by  this  discussion 
on  the  prices  which  should  be  charged  and  the 
profits  which  should  be  made  in  municipal  trades. 
It  can  only  be  said  that  wages,  though  they  ought 
not  to  be  higher  than  those  given  in  private 
trades,  will,  as  a  fact,  be  higher,  and  that  the  gross 
receipts  will  thereby  be  reduced.  If  no  tax  is  to 
be  imposed  on  the  goods  sold  by  municipalities, 
it  can  only  be  said  that  but  a  shght  rent,  or  profit 
equivalent  to  a  rent,  should  be  drawn  or  made 
from  municipal  trades,  and  that,  beyond  this  rent, 
probably  no  profit  whatever  should  be  made  whilst 
the  full  interest  and  sinking  fund  charges  have  to 
be  paid.  It  is  true,  however,  that  when  competi- 
tion is  very  indirect,  a  slight  tax  on  the  goods 
sold  will  do  but  little  harm ;  for  a  slight  rise  in 
the  prices  of  gas,  for  example,  would  not  materially 
increase  the  use  of  other  less  economical  methods 
of  lighting.  We  may  conclude,  therefore,  that  while 
it  is  quite  clear  that  no  loss  ought  to  be  made, 
it  is  not  improbable  that  a  loss  will  be  made  whilst 
all  the  debts  remain  unredeemed ;  and  that  certainly 
very  little  net  profit  should  be  made  whilst  all 
these  charges  have  to  be  met,  the  wisest  rule 
probably  being  to  aim  at  making  none  at  all. 

(15)  In  the  foregoing  discussion,  attention  has 
been  exclusively  devoted  to  the  debt  redemption 
period.  A  very  different  state  of  things  will,  how- 
ever,  arise   when   the   municipal   trading   debts   are 


360  SUGGESTED   LEGISLATION  [chap.  xii. 

all  paid  off,  and  when  it  is  no  longer  necessary  to 
cover  out  of  gross    profits   any  charges   for   interest 
and  repayments  of  capital.     The  arguments  against 
charging  prices  on  a  higher  level  than  those  charged 
by   directly   or   indirectly    competing    private    firms 
still  hold  good  in  these  circumstances.      But,  even 
if  prices   are   maintained   at   a   commercial   level,  a 
net  profit  equal  to  these  no  longer  necessary  charges 
will  then  probably  be  made,  and  the  question  arises 
as    to   what    should    be   done   with    this   net   profit. 
Judging    by   English   municipal    undertakings,    this 
question     is    not    a    small    one ;    for,    if    after   the 
redemption   of  all   the  debts   the    net    profits   were 
wholly    devoted    to,   or    absorbed    by,   a    reduction 
in   prices,   the    effect   would   be   that   prices    would 
then,    as    compared    with    their    present    level,    be 
reduced    by   about   one-third    on    the   average.      In 
deciding   whether    the    net    profits    should    be    dis- 
posed of  in  this  way  or  not,  it  is   to  be   obser\'ed 
that  the   operation  of  sinking   funds   for   municipal 
trades    may    be    regarded    as,    in    the    first    place, 
a    compulsory   setting   aside    annually  of    a    certain 
sum   by   the  whole  community,  with  the  object  of 
its   being   allowed   to   accumulate   at  compound  in- 
terest ;    and   as,    in    the    second   place,   the    invest- 
ment   of    this    sum    in    a   commercial   undertaking 
managed    by   the   municipality   itself.      The   opera- 
tion ceases  when  the  whole  value  of  the  municipal 
enterprise  has  thus  been  covered ;  and  the   question 
is   whether   the   interest  on   this  accumulated   fund 
should  then  be  given  as  a  bonus  to  the  ratepayer 
in   the   form    of  a   reduction    of    taxation,    or   as   a 
bonus  to  the  consumer  in  the  form  of  a  reduction 
in   prices.      The   consumer    may   claim    it    on    the 


CHAP,  xii.]   PRICES  WITH  DEBTS  REDEEMED  361 

ground  that  the  fund  has  been  accumulated 
entirely  out  of  moneys  paid  in  by  him ;  but  this, 
claim  is  only  logical  to  the  extent  to  which  he 
has  been  forced  to  pay  more  for  the  goods  bought 
from  the  municipality  than  he  would  have  had  to 
pay  if  the  trade  had  remained  in  private  hands ; 
in  proportion,  that. is,  to  the  amount  of  the  indirect 
taxation  thus  paid  by  him.  The  ratepayer,  on  the 
other  hand,  may  urge  that  the  fund  was,  in  reality, 
created  to  a  considerable  extent  out  of  addi- 
tional taxation  drawn  from  him ;  and  that,  where 
this  was  not  the  case,  the  municipalisation  of 
the  industry  was,  in  fact,  a  speculation  in  which 
it  was  he  who  stood  to  lose ;  and,  the  speculation 
having  turned  out  successfully,  it  is  he  who 
ought  to  reap  the  reward.  Perhaps  the  latter 
claim  is  generally  the  stronger  of  the  two,  in  which 
case  no  reduction  in  prices  should  be  made,  and 
the  net  profits  should  all  go  to  the  reduction  of 
taxation. 

(16)  Little  weight  will  perhaps  be  attached  to 
the  foregoing  argmnent,  and  such  questions  should, 
without  doubt,  be  settled  on  wider  grounds. 
Taking  the  case  of  tramways,  for  example,  it 
may  be  asked  what  harm  would  be  done  when 
the  debts  are  all  liquidated  by  reducing  ftires  to 
such  level  as  just  to  cover  all  the  cost  incurred 
in  the  business  ?  JNIore  persons  would  travel  in 
tramways,  and  fewer  persons  would  travel  in 
omnibuses ;  but  would  that  be  objectionable  if 
the  reason  for  the  increased  use  of  the  tramways 
was  the  lowness  of  the  fares  ?  If  the  tram- 
way companies  could  meet  all  future  demands 
without   any  increase  of  capital   expenditure,  there 


362  SUGGESTED   LEGISLATION  [chap.  xii. 

would,  it  will  be  seen,  be  no  economical  objection 
to  fares  being  reduced  and  to  all  the  profits  due 
to  the  redemption  of  debts  being  absorbed  in  this 
way.  But  in  all  normal  trades  new  capital  will 
be  required  from  time  to  time ;  and,  whenever 
this  is  the  case,  there  are  several  strong  reasons 
why  prices  and  fares  in  municipal  trades  should 
be  kept  up  to  the  commercial  level  even  if  large 
profits  are  thus  made.  After  the  redemption  of 
the  municipal  trading  debts,  municipalities  could 
lower  their  fares  by  more  than  20  per  cent. ;  but, 
if  they  did  thus  reduce  their  fares  to  a  level  far 
below  that  charged  either  by  private  proprietors  or 
by  other  municipalities  with  unredeemed  debts,  it 
would  have  a  generally  deterrent  effect  on  trade. 
After  fares  had  thus  been  lowered,  it  would  become 
very  difficult  to  persuade  the  public  of  the 
necessity  of  higher  fares  being  charged  in  any 
circumstances.  A  municipality  acting  in  this  way 
would  in  consequence  be  less  wilhng  to  extend 
its  tramway  system  into  new  districts  ;  because,  in 
order  to  cover  the  interest  and  sinking  fund  on 
the  new  capital,  it  would  have  to  face  the  odium 
of  charging  what  would  then  be  held  to  be  un- 
reasonable fares.  Private  companies  in  the  same 
neighbourhood  would  in  similar  circumstances  find 
it  more  difficult  to  get  reasonable  terms  included 
in  tramway  concessions ;  and  both  private  and 
public  enterprise  would  thus  be  checked.  This 
appears  to  me  to  be  a  weighty  reason  for  main- 
taining that  in  the  case  of  all  monopolies  the 
ratepayer,  and  not  the  consumer,  should  get  the 
benefit  when  the  municipal  debts  are  liquidated. 
(17)  The  same  conclusion  may   also  be   reached 


CHAP.  xiL]      PRICES  AVITH  DEBTS  REDEEMED  363 

by  regarding  the  matter  from  a  more  strictly 
economical  point  of  view.  Take  the  case  of  a 
town  where  there  are  municipal  gas-works,  the 
whole  debt  for  which  has  just  been  redeemed,  and 
where  there  are  also  newly  established  electric 
lighting  works,  either  private  or  public,  and,  if  the 
latter,  with  interest  and  sinking  fund  charges  for 
the  full  debt  to  cover ;  and  let  it  be  assumed  that 
the  municipality  is  increasing  its  sales  of  gas  to  its 
original  customers  and  also  extending  its  gas  mains 
into  new  districts,  whilst  at  the  same  time  electric 
lighting  operations,  public  or  private,  are  being 
commenced  over  the  whole  area.  The  municipality 
would  have  to  raise  some  new  capital  on  account 
of  the  extensions  of  its  operations  in  gas,  and 
consequently  to  create  a  new  sinking  fund ;  but  it 
might,  nevertheless,  be  able  both  to  make  a  con- 
siderable net  profit  and  also  to  reduce  the  price  of 
gas  considerably,  unless,  indeed,  the  new  operations 
were  very  extensive.  But  a  reduction  of  prices  in 
these  circumstances  would  be  equivalent  to  a  part 
of  the  interest  on  an  accumulated  fund  being  given 
by  the  municipality  as  a  bounty  in  the  form  of  a 
reduction  of  prices,  not  only  to  their  original 
customers  as  regards  their  original  supplies,  but  also 
both  to  the  same  customers  for  additional  supplies 
and  to  all  new  customers  in  the  newly  opened 
districts.  In  this  manner  gas  might  be  so  reduced 
in  price  that  it  would  cut  out  electricity  even 
where  electricity  was  more  economical  or  in  any 
other  way  preferable.  Neither  private  nor  new 
municipal  electric  lighting  works  would  have  an 
accumulated  fund  from  which  bounties  could  be 
drawn,  and  they  would  not,  therefore,  be  competing 


i 


364  SUGGESTED   LEGISLATION  [chap.  xn. 

on  even  terms.  It  might,  perhaps,  be  argued  that, 
if  such  a  reduction  in  the  price  of  gas  were  made. 
Local  Authorities  would  find  that  any  increase  of 
consumption  necessitating  new  capital  would  reduce 
their  net  profits ;  and  that,  consequently,  no  such 
increase  would  be  sought  for.  This  answer  has,  no 
doubt,  much  truth  in  it ;  for  a  reduction  in  price 
below  a  certain  level  has,  as  we  have  already  seen, 
a  tendency  to  check  progress.  But  municipalities 
cannot  as  a  rule  refuse  to  extend  their  business, 
and,  moreover,  they  would  frequently  fail  to  per- 
ceive that  such  extensions  were  not  remunerative. 
Progress,  in  fact,  cannot  and  will  not  be  checked ; 
and,  if  it  could  be  checked,  nothing  would  be 
more  disastrous.  Again,  it  might  perhaps  be 
suggested  that  the  evil  economic  effects  under 
consideration  would  not  be  felt  if  consumers  were 
charged  such  a  price  for  any  additional  supply  of 
gas  as  would  cover  the  interest  and  sinking  fund 
on  the  additional  capital  required.  This  is  perfectly 
true.  But  the  suggestion  would  be  futile  because 
it  would  be  difficult  to  charge  different  prices  in 
different  areas,  and  practically  impossible  to  charge 
different  prices  to  different  householders  on  account 
of  the  different  dates  at  which  additional  supplies 
were  obtained.  In  fact,  if  municipalities  are  never 
to  give  a  bounty  which  might  have  the  effect  of 
maintaining  an  obsolete  trade  in  existence,  the 
rule  must  be  that  the  full  commercial  price  should 
always  be  charged  in  municipal  trades.  Taxes  and 
not  prices  must  be  reduced  at  the  end  of  debt 
redemption  periods,  even  if  a  large  net  profit  is 
then  made. 

(18)    The     length     of    time     allowed     for     the 


cHAP.xiL]       REPAYMENTS   OF  PRINCIPAL  365 

redemption  of  loans  and  the  method  of  redeeming 
them  are  important  factors  in  determining  the  net 
profits  of  municipal  trades,  and  it  is  important  to 
ascertain  as  far  as  possible  the  principles  which 
should  be  held  in  view  in  deciding  on  all  legislation 
affecting  municipal  debts.  The  necessity  for  a 
sinking  fund  depends  on  the  fact  that  without  such 
an  arrangement  a  risk  would  be  thrown  in  perpetuity 
on  the  irresponsible  ratepayers  of  the  future ;  but 
such  a  consideration  merely  indicates  that  it  is 
just  to  throw  as  much  of  the  burden  as  possible 
on  the  existing  generation  of  ratepayers.  The 
grave  objections  akeady  noticed  ^  to  loans  being 
allowed  to  run  for  a  longer  period  than  the  life  of 
the  plant,  machinery,  etc.,  purchased  with  the 
money  thus  raised  affords  a  more  definite  principle 
on  which  to  act,  and  one  which  the  government 
departments  concerned  always  appear  to  hold  in 
view  in  deciding  on  the  debt  redemption  periods. 
But  this  merely  indicates  a  maximum  limitation 
without  giving  any  indication  as  to  whether  the 
period  should  be  shorter,  and,  if  so,  how  much 
shorter,  than  the  life  of  the  plant  bought.  The 
shorter  the  period  the  heavier  will  be  the  annual 
payments  and  the  less  willing  will  Local  Authorities 
be  to  raise  money ;  and,  when  loans  are  needed  for 
necessary  sanitary  works,  the  period  should  therefore 
be  as  little  restricted  as  possible.  But  in  all  other 
cases  "  the  shifting  of  population,  the  alteration  of 
"  accepted  standards  of  efficiency,  the  variation  of 
"  boundaries,  the  progress  of  science  and  discovery, 
"  exceptionally  heavy  storms  and  a  variety  of  other 
"  causes,  may  upset  calculations  based  upon  even  the 

'  See  chap,  viii.,  par.  21. 


366  SUGGESTED  LEGISLATION  [chap.  xn. 

"  widest  experience,"  ^  and  these  considerations  make 
it   necessary  to   adopt  a  cautious  attitude  in   fixing 
the  debt  redemption  period.     In  fact,  with  reference 
to  all  the  objects  on  the  purchase  of  which  municipal 
loans   have   been   expended,   we   must   consider   for 
how  long,  on  the  average,  are  they  hkely  to  be  a 
source  of  profit  to  the  community.      On  the  other 
hand,  if  the  period  were  made  too  short,  the  charge 
for  the  sinking  fund  would,  even  in  successful  under- 
takings,  have   in   reality   the   effect   of   imposing   a 
considerable  tax  either  on  the  ratepayer  or  on  the 
commodity  sold,  either  of  which  would  be  decidedly 
objectionable.      Not   only  has   the  debt  redemption 
period    to    be    decided    on,    but    the    method    of 
redeeming  the  debt  must  also  be  settled.     The  loan 
may  be  redeemed  under  a  sinking  fund  system  by 
setting  aside  a  fixed  sum  annually  and  by  allowing 
it  to   accumulate  at  compound   interest  until  it  is 
sufficient  to  pay  off  the  whole  loan.     Or  the  loan 
may  be  paid  off  by  the   instalment  system  by  the 
redemption  each  year  of  a  certain  definite  fraction 
of  the  whole  loan ;  in   which  case  the   charges  for 
interest  and  redemption  will  be  larger  at  first  and 
less  eventually  than  under  the  sinking  fund  system. 
Generally    speaking,  all    the    arguments    which   tell 
for  short  redemption  periods  also  tell  in  favour  of 
the  instalment  system ;  whilst  the  main  objection  to 
that  system   is   that  the   varying   annual   payments 
introduce  a  certain  difficulty  in  the  fixing  of  prices 
in  municipal  trades.      All  these  considerations  are, 
it  must  be  admitted,  somewhat  vague ;    and  it  can 
only   be   said   that    the    existing   practice   does   not 

1  "Reijayment  of  Loans,"  1902,  Report  of  Select  Committee  of  H.  of  C, 
par.  33. 


cHAP.xii]       REPAYMENTS   OF  PRINCIPAL  367 

appear  to  go  contrary  to  them.  This  matter  has 
been  recently  investigated  by  a  Parhamentary  Com- 
mittee, and  its  report  confirms  the  impression  that 
no  very  material  alterations  are  desirable  in  the 
existing  procedm-e. 

(19)  There  is,  however,  one  point  which  has  not 
yet  been  considered ;  for,  in  the  foregoing  discussion 
it  has  been  assumed  that  either  all  or  none  of  the 
municipal  debts  remained  unredeemed.  But,  in 
the  case  of  a  very  large  number  of  municipal 
trades,  debts  are  partially  redeemed,  and  then  con- 
siderable net  profits  may  be  made  without  prices 
being  raised  so  high  as  in  effect  to  impose  a  tax 
on  the  goods  sold ;  and  the  question  arises  as  to 
who  should  then  receive  those  profits.  The 
consumer  has  been  put  out  of  court;  but  should 
the  ratepayer  be  the  recipient,  or  should  the  money 
be  used  for  the  more  rapid  redemption  of  the  muni- 
cipal debts  ?  If  it  be  admitted  that  Municipal  Trade 
ought  not  to  be  undertaken  for  the  sake  of  making 
a  profit,  and  also  that  it  is  undesirable  to  throw  a 
risk  on  irresponsible  or  reluctant  ratepayers,  what 
objection  can  there  be  to  devoting  all  such  profits 
to  the  reduction  of  debts  rather  than  to  the  reduction 
of  taxation.  One  objection  may,  no  doubt,  be  urged. 
Take  the  case,  for  example,  of  a  municipahty  which, 
having  paid  off  all  its  trade  debts,  is  in  receipt  of  a 
clear  net  profit  of  £25,000  a  year  from  its  trading 
operations.  If  this  municipality  were  to  borrow 
£100,000  for  extensions  of  its  trading  enterprises, 
and  if  it  were  the  law  that  all  profits  went  to  the 
redemption  of  debts,  it  would  then  find  that  all 
the  net  profit  previously  made  was  entirely  absorbed 
during  the  next  four    years,   and   during  the   next 


368  SUGGESTED  LEGISLATION  [chap.  xii. 

four  years  only.  Any  irregularity  of  revenue  is 
objectionable,  and  any  such  sweeping  proposal  could 
not,  therefore,  wisely  be  adopted.  But  if  the  muni- 
cipahty  were  to  raise  this  £100,000  on  such 
conditions  that  1  per  cent,  per  annum  was  to  be 
paid  into  a  sinking  fund  whether  there  was  any 
profit  available  or  not,  and  that,  say,  an  additional 
1  per  cent,  was  to  be  paid  into  the  sinking 
fund  out  of  net  profits  whenever  such  net  profits 
were  available,  then  the  disadvantages  arising  from 
the  consequent  irregularity  of  revenue  might  be 
neglected.  The  instalment  system  is  in  my  opinion 
the  best  for  non-productive  purposes ;  but,  if  the 
sinking  fund  system  could  be  modified  in  some 
such  way  as  this,  it  might  still  be  the  best  for 
municipal  trading  loans. 

(20)  The  following  are  therefore  the  conclusions 
arrived  at  with  regard  to  profits  and  prices.  For 
the  goods  supplied  by  them,  Local  Authorities 
should  generally  charge  prices  on  the  same  level  as 
the  prices  charged  in  private  trades.  The  exist- 
ing laws  with  regard  to  the  redemption  of  loans 
do  not  require  serious  modification ;  though  it 
would  be  as  well  to  redeem  loans  somewhat  more 
rapidly  when  any  net  profits  made  by  trading  at 
such  commercial  prices  are  available  for  the 
purpose.  A^^hen  municipal  trading  debts  are 
wholly  redeemed,  the  net  profits,  even  if  consider- 
able, should  be  applied  to  the  relief  of  taxation  ; 
when  they  are  partially  redeemed,  part  of  the  net 
profits  should  go  to  the  ratepayer  and  part  to 
hasten  the  redemption  of  the  debts  ;  and,  before 
any  debt  is  redeemed,  very  little  net  profit  should 
be  made,  and  then  only  w^hen  it  is  deliberately  in- 


CHAP,  xii]        LEGISLATION   AS  TO   PRICES  369 

tended    to  impose  a  tax  on,  or  draw  a  rent  from, 
the  industry  in  question. 

(21)  Such  conclusions,  if  accepted  as  being  sound, 
would   often   be   useful   in  deciding  what   ought  to 
be  done  ;  though  it  by  no  means  follows  that  they 
could    be   enforced   on   unwilling   municipalities   by 
Parliament.     Certain   modifications   might,   perhaps, 
be  made  with  advantage  in  the  laws  affecting  sink- 
ing  funds ;    but   great    difficulties    would    be    met 
with  in  any  attempt  to  legislate  with  regard  to  the 
more  vital  questions  of  municipal  profits  and  prices. 
A  rough  and  ready  rule  w^hich,  if  adopted,  would 
approximately    embody   the    foregoing    conclusions, 
would    be    that    municipalities    should,    if  2^ossihle, 
make   a   gi-oss  profit   of,    say,    4   per   cent,    on    the 
capital   originally   invested    in    the    enterprise,    and 
that   they   should   let  the   net  profits  take   care   of 
themselves.      But    to   enforce    any   such    rule,   and 
thus  to  prohibit  municipalities  from  either  imposing 
a    tax   on   the    goods    they   sell,   or    from    levying 
a  large  rent  from  the  industries  they  manage,  would 
necessitate   a   rigid   definition   of  the    term    "  gross 
"  profits  " ;  and  on  this  head  many  difficulties  would 
at  once  arise.     For  example,  a  municipality  owning 
tramways  might  perhaps  legitimately  account  for  a 
part  of  its  receipts,  not  as  profit,  but  as  a  rent  paid 
to  itself.     Glasgow  has  paid  out  of  tramway  receipts 
£12,.500  a  year  to  a  city  fund  called  the  Common 
Good,  which  payment  is  practically  "a  mileage  on 
"the   use  of  the  street  equivalent  to  what  the  old 
"  company  used  to  pay "  to   that  fund  ;  ^  and   little 
objection  can  be  raised  to  such  payments  if  moderate. 
Would  it  be  possible   to   enforce   the  inclusions  of 

1  M.T.R.,  Q.  2924. 
2  A 


870  SUGGESTED   LEGISLATION  [chap.  xii. 

all  such  sums  in  the  gross  profits  if  any  restriction 
were   placed   on   those   gross  profits  ?      Again,   if  a 
municipality  erects  gas-works  on  leasehold  property, 
any   ground   rent  to   be   paid   for   the    land   should 
undoubtedly   be   included    in    the    cost   of   produc- 
tion ;  but,  if  the  municipality  were  instead  to  build 
gas  -  works    on    its    own    ground,    might    it    then 
charge    a    rent    against    that    enterprise,    and    not 
include   that   rent   in   the   gross   profits  ?      Might   a 
similar  rent  be  charged  for  the  use  of  public  build- 
ings ?     These   questions,  and  others  connected  with 
depreciation,   reserve   funds,   repayment   of  losses  in 
previous  years,  etc.,  etc.,  raise   innumerable  points, 
all    of    which    would    have    to    be    dealt    with    in 
any  Act  of  Parliament  regulating  municipal  profits. 
A  most  elaborate  central  system  of  inspection  both 
of    the    accounts    and    of    the    works    themselves 
would,   moreover,   be   necessary  if  Parliament  were 
determined  to  see   that   its   decrees   were   enforced. 
General    words    might    be    included    in   an   Act   of 
Parliament  in  order  to  indicate  generally  to  Local 
Authorities  what  they  ought  to  do  with  regard  to 
profits   and    prices ;    but    any    statutory    provisions 
beyond   this   would   be   attended   with   the  greatest 
difficulties.       INIunicipalities    must    be    trusted   with 
wide   powers   with   regard   to    the    management    of 
all  the  enterprises  they  are  permitted  to  undertake. 
(22)  In  order  to  remove   a   harmful   temptation 
to   undertake   municipal   trades,   it    has    often   been 
suggested   that   the   making    of    net    profits    should 
be   altogether    prohibited ;    or,   at    all    events,    that 
taxation  should  never  be  relieved  by  the  appropria- 
tion  of  such    profits    to    general    municipaHfunds. 
But   not  only  would   the   difficulties   attending  the 


CHAP.  XII.]  PROHIBITION   OF  PROFITS  371 

regulation  of  prices  and  profits  be  felt  to  the 
full  if  any  such  attempt  were  made,  but  such 
a  step  would  be  attended  with  definite  harmful 
consequences.  If,  after  municipal  loans  had  been 
wholly  or  partially  redeemed,  all  the  profits  were 
absorbed  by  a  reduction  in  prices,  the  same  harm- 
ful effects  on  trade  -  would  be  produced  as  those 
resulting  from  the  award  of  considerable  bounties 
to  the  consumers  of  certain  goods.  Profits,  it  may 
be  said,  are  prohibited  in  Scotch  municipal  trades. 
But  this  fact  can  hardly  be  quoted  as  a  proof  of  the 
wisdom  of  this  prohibition,  especially  as  the  harmful 
consequences  will  not  be  felt  to  nearly  their  full 
extent  until  the  municipal  loans  have  been  redeemed 
to  a  far  greater  degree  than  is  the  case  at  present. 
Profits  may  also  be  absorbed  in  other  ways ;  as, 
for  example,  by  their  transference  to  funds  like 
the  Common  Good  of  Glasgow,  to  which  certain 
tramway  profits  are  now  paid.  But,  if  such  funds 
cover  any  expenditure  which  would  otherwise  come 
out  of  the  rates,  any  payments  to  them  would 
have  somewhat  the  same  effect  as  the  direct  use 
of  profits  for  the  relief  of  taxation.  If,  on  the 
other  hand,  such  funds  are  used  exclusively  for 
services  which  would  in  no  circumstances  be  paid 
for  out  of  local  taxation,  any  contributions  to 
them  out  of  public  funds  would  often  lead  to 
extravagance.  Thus  it  is  extremely  difficult  to 
devise  any  enactment  for  the  prohibition  of  profit- 
making  which  would  be  both  practical  and 
innocuous ;  and  it  would  be  both  impracticable 
and  unwise  to  attempt  to  lessen  by  any  such  means 
the  temptations  resulting  from  INIunicipal  Trade. 

(23)  As  we  have   seen,  profits  may  err  in  being 


372  SUGGESTED   LEGISLATION  [chap.  xii. 

either  too  large  or  too  small ;  and  legislation  cannot 
be  effectively  applied  as  a  safeguard  against  either 
error.  In  spite  of  all  possible  legislation,  the  rate- 
payer or  the  consumer  must  run  some  risks  as 
the  result  of  Municipal  Trade,  and  no  law  could 
be  devised  which  would  in  all  cases  prevent  the 
ratepayer  being  called  on  to  pay  part  of  the 
interest  and  sinking  fund  charges  on  municipal 
trading  debts.  If  the  commodity  supplied  were  one 
like  water,  which  is  universally  used,  no  ratepayer 
would  have  a  well-founded  ground  of  complaint 
at  being  forced  to  take  such  risks ;  neither  is 
there  necessarily  any  injustice  in  Local  Author- 
ities rendering  a  service  to  a  minority  of  the  in- 
habitants when  the  indirect  results  to  the  whole 
community  are  beneficial.  But  in  all  cases  in 
which  ratepayers  incur  risks  without  receiving  any 
benefit,  they  may  legitimately  demand  some  com- 
pensation ;  a  compensation  which  could  only  be  the 
award  of  a  premium  in  the  form  of  a  reduction 
of  taxation.  But  such  premiums  must  come  out 
of  net  profits ;  and  the  making  of  a  net  profit 
whilst  the  debts  are  being  redeemed  —  that  is, 
during  the  only  period  of  risk  to  the  ratepayer — 
is  generally  open  to  the  economic  objection  that 
prices  must  be  raised  to  such  a  level  as  to  be 
equivalent  to  the  imposition  of  a  tax  on  the  goods 
supplied.  The  unbenefited  ratepayer  cannot  wisely 
be  given  compensation  in  the  only  way  possible 
for  the  risks  imposed  on  him,  and  when  the  risks 
are  considerable,  and  when  the  number  of  consumers 
presumably  benefited  is  small,  this  constitutes  a  very 
serious  objection  to  Municipal  Trade.  Frequently  in 
England  not  more  than  15  per  cent,  of  the  houses  in 


CHAP.  XII.]  PROHIBITION   OF  PROFITS  373 

a  town  have  electric  installations  or  are  fitted  with 
telephones ;  and,  as  regards  these  and  similar 
municipal  trades,  it  is  difficult  to  see  what  justifica- 
tion there  is  for  imposing  a  risk  on  any  individual 
who  receives  no  corresponding  advantage.  As  to 
these  municipal  trades  wdth  regard  to  which  it  is 
inequitable  to  throw  a  risk  on  the  unbenefited 
ratepayer,  it  is  obviously  still  more  inequitable  to 
sell  the  goods  made  at  such  prices  as  to  necessitate 
an  actual  cl Large  being  thrown  on  the  rates  ;  and 
against  neither  of  these  grievances  can  legislation 
provide  an  effective  safeguard.^ 

(24)  With  regard  to  the  suggested  prohibition 
of  profit-making  in  Municipal  Trade,  it  is  to  be 
observed  that  prices  being  placed  on  too  low  a  level 
is  a  more  probable  contingency  than  their  being 
placed  on  too  high  a  level.  The  average  voter  is 
keenly  alive  to  the  advantages  of  low  prices ;  whilst 
he  hardly  recognises  the  fact  that  rates,  and  conse- 
quently rents,  would  be  increased  in  consequence  of 
a  decrease  in  his  municipal  gas  bill  unless  accom- 
panied by  a  corresponding  decrease  in  the  cost  of 
production.  Taxation  he  regards  as  fate  ;  whereas 
gas-works  do  appear  to  him  to  be  under  human 
control.  Prices  must  fluctuate  from  time  to  time ; 
and  Local  Authorities,  though  wilhng  to  gain 
credit  by  lowering  prices  when  profits  would  other- 
wise tend  to  increase,  will  not  raise  prices  again 
when  profits  are  shrinking,  preferring  to  increase 
taxation  instead.  The  inevitable  oscillations  in  the 
cost  of  production  will  therefore  tend  to  cause 
a  continual  downward  movement  in  prices  in 
municipal  trades ;   and   this  movement  could  hardly 

^  M.T.R.,  Qs.  857,  3827,  3872,  etc. 


374  SUGGESTED   LEGISLATION  [chap.  xii. 

be  arrested  by  general  legislation  even  though  the 
inevitable  result  could  be  proved  to  be  an  economic 
loss  to  the  community.  The  charging  of  too  low 
prices  is  especially  probable  after  a  considerable 
proportion  of  the  debts  have  been  redeemed ;  for 
then  no  unbenefited  ratepayer  need  necessarily 
have  any  burden  thus  thrown  on  him,  and  in  the 
absence  of  such  additional  taxation  he  w^ould  have 
no  apparent  cause  for  complaint.  But  the  making 
of  a  net  profit  which  is  then  probable  is  no  proof 
that  prices  are  not  too  low,  or  that  an  inferior  trade 
is  not  being  kept  aUve  by  the  award  of  a  bounty 
to  its  consumers.  Prices  should  always  be  kept  up 
to  a  certain  level ;  and  for  this  reason  it  would 
appear  to  be  unwise  to  pass  laws  tending  to 
impose  any  limitation  on  profits  unless  accom- 
panied by  legislation  tending  to  keep  up  prices  to 
the  required  level.  But  it  would  be  impossible  by 
law  to  force  mimicipalities  to  raise  their  prices  to 
that  indefinite  level  at  which  no  economic  evil 
effects  would  be  felt.^ 

(25)  Another  subject  requiring  the  attention  of 
the  Legislature  is  the  extension  of  municipal  trades 
beyond  the  boundaries  of  the  nmnicipalities  under- 
taking them.  Such  extensions  come  about  in  various 
ways.  The  area  supplied  by  a  private  gas  company, 
for  exainple,  seldom  coincides  exactly  with  any  local 
government  area ;  and,  since  it  would  as  a  rule 
be  practically  impossible  to  divide  up  an  industry 
into  fragments  corresponding  to  the  different  local 
government  areas  supplied,  municipalities  purchasing 

^  On  the  general  (question  :  "  Ought  municipal  enterprises  to  be  allowed 
to  yield  a  profit  ? "  see  also  Edwin  Cannan  in  Economic  Joimial,  March 
1899. 


CHAP.  XII.]  PREFERENTIAL  CHARGES  375 

going  concerns  must  frequently  undertake  duties  in 
districts  outside  their  boundaries.  Again,  when 
Town  Councils  are  constructing  tramways,  it  is 
often  most  desirable  to  run  them  out  into  outside 
populous  districts  in  order  to  make  the  parts  within 
the  municipal  area  as  profitable  as  possible ;  and, 
moreover,  the  crossing  of  other  Local  Government 
areas  in  many  cases  cannot  be  avoided  if  two 
portions  of  the  same  municipality  are  to  be  con- 
nected by  tram-lines.^  When  the  other  Local 
Authorities  concerned  are  not  willing  to  take  any 
part  in  the  management  of  these  growing  industries, 
this  trading  outside  the  municipal  area  cannot  well 
be  avoided. 

(26)  But  whether  avoidable  or  not,  this  class 
of  municipal  enterprise  gives  rise  to  many  difficult 
questions  connected  with  the  prices  which  a 
municipality  may  equitably  charge  to  customers 
in  areas  not  under  its  control ;  in  what  may  for 
convenience  be  called  the  "  outside  areas  "  in  contra- 
distinction to  the  "  inside  area "  under  the  govern- 
ment of  the  Local  Authority  owning  the  works. 
First  let  it  be  assumed  that  the  prices  charged  are 
nowhere  so  high  as  in  effect  to  impose  an  indirect 
tax  on  the  goods  supplied.  In  considering  whether 
the  charging  of  a  lower  price  in  the  inside  area  as 
compared  with  that  charged  in  the  outside  area 
by  the  same  municipality  —  a  preferential  charge, 
as  it  may  be  called — is  objectionable  or  not  in 
these  circumstances,  it  may  be  urged  with  truth 
tliat  a  sinking  fund  should  be  regarded  mainly  as 
an  accumulation  of  insurance  premiums  due  but 
not  paid   to   the   ratepayers   taking   the    risk ;   that 

'  M.T.R.,  Q.  115. 


! 


376  SUGGESTED   LEGISLATION  [chap.  xii. 

is,  to  the  ratepayers   in   the  inside   area  ;   and  that, 
such  being   the   case,  the  ratepayers  in  the   outside 
areas    ought   to    have    no   voice   in   determining  to 
what  use  the  interest  arising  from  this  accumulated 
fund   should   be    put.     The    inhabitants   of    outside 
areas  could   raise  no  strong  objection  if  the  whole 
of  the  interest  from  this  fund  were  to  be  given  as 
a    bonus   to    the    inside    ratepayers ;    or,    in    other 
words,    if    the    profits    made    in    municipal    trades 
m  consequence  of  the  partial  or  total  redemption  of 
debts  were  all  to  go  in  the  relief  of  taxation  in  the 
inside  area.     Neither  could  they  object  if  the  interest 
in    these  circumstances   were  all   to   be  given   as  a 
bounty   to    the    consumers    in   the   inside  area ;  or, 
in   other   words,    if  the  net   profits   were   all  to   be 
absorbed  by  lowering  prices  in  the  inside  area  with- 
out lowering  them  in  the  outside  area.     It  is  indeed 
difficult  to  see  how  a  l^ocal  Authority  can  justify  its 
action  in  throwing  any  risk  due  to  trading  in  out- 
side areas   on   its   own   ratepayers  without   securing 
for  them  the  full   benefits   arising  from  the  specu- 
lation if  successful ;    and,  although  this  points  to  a 
reduction  of  rates  in  the  inside  area  rather  than  to 
a  reduction   of    prices,   the  outside    ratepayer    thus 
far    appears   to  have    no  grounds    of  complaint   in 
consequence   of    preferential    prices    being    charged 
in   the  inside  area.     In  fact,  nothing  has  been  said 
thus   far   to   indicate   that   preferential    charges   are 
unjust.        Unfortunately     we     have,     however,     no 
justification   for   assuming,   as   we   have   done,   that 
prices   will   not   be  raised  by  municipalities  to  such 
a    level   as    in  effect  to   amount  to  the   imposition 
of  an   indirect  tax   on   the   commodities   sold  ;    for 
such    action    on    the    part    of    Local     Authorities 


CEAP.  XII.]  PREFERENTIAL  CHARGES  377 

cannot     be    prevented.       If    municipal    trading    in 
outside   areas  be  permitted,  it  will   inevitably  place 
in    the   hands   of  town   councillors   the   opportunity 
of   raising   an   indirect   tax    from   ratepayers   whom 
they  do  not  represent  for  the  benefit  of  ratepayers  or 
consumers  whom  they  do  represent.     Such  taxation 
cannot  be  justified  in  any  circumstances ;   and  if  the 
same  indirect   taxation  is   raised   within    the   inside 
area — if  differential   charges   do    not   exist— it   does 
not,  in    reality,  make   this   taxation   in   the  outside 
area   less   unjust.       Any   reduction   of  rates  in   the 
inside   area   in   consequence   of   large   profits    being 
made  by  charging  high   prices  in  the  outside  area, 
will  be  no   more  just   because  high  prices  are  also 
charged    in    the    inside    area.      ^lunicipalities   will, 
however,    be  far   less   likely   to   raise   indirect   taxa- 
tion of  this  kind  in  outside  areas  if  they  are  obliged 
to  charge  the  same  prices   everywhere ;   because  in 
these  circumstances  a  tax  on  the  outside  consumers 
would  necessitate  a   tax   being   also  levied  on  their 
own  constituents,  the  inside  consumers.     Preferential 
charges    should    for   this  reason   be   absolutely  pro- 
hibited ;   for,   though    this    would    be   but   a   feeble 
safeguard  against  unjust  indirect  taxation,  it  is  the 
best  safeguard  available. 

(27)  If  preferential  charges  are  prohibited,  it  is 
true  that  when  outside  trading  takes  place,  the 
inside  ratepayer  may  incur  a  risk  for  which  he  gets 
no  benefit.  But  where  the  Local  Authority  of  the 
outside  area  is  willing  to  join  in  the  commercial 
venture,  the  whole  business  should,  if  possible,  be 
managed  by  a  Joint  Board  representing  all  the 
areas  concerned.  No  outside  trading  would  then 
take    place ;    all    the    ratepayers    concerned    would 


378  SUGGESTED  LEGISLATION  [chap.  mi. 

share  alike  in  the  risk ;  and  all  would  have  equal 
opportunities  of  bringing  their  complaints  to  the 
notice  of  the  managing  body.^  The  difficulty 
of  establishing  such  a  system  does  not,  as  a  rule, 
lie  with  the  outside  Local  Authorities  ;  they  would 
be  willing  enough  to  join.  But  the  Corporations  of 
large  cities,  who  would  in  any  case  have  the  bulk 
of  the  trade  carried  on  within  their  own  area, 
would  generally  dislike  the  intrusion  of  a  small 
outside  element  into  the  managing  body  of  that 
trade.  Thus  friction  would  probably  arise  if  man- 
agement by  Joint  Boards  were  enforced  by  law ; 
and  the  distribution  of  profits  amongst  the  various 
parties  concerned  would,  moreover,  present  some 
difficulties.  Such  a  method  of  managing  municipal 
trades  covering  many  areas  is,  however,  the  only 
equitable  plan ;  and,  if  it  is  generally  rendered 
impossible  by  the  action  of  what  would  be  the 
larger  partner  in  the  joint  concern,  this  impossibility 
points  to  a  serious  objection  to  all  municipal  trad- 
ing. Whether  the  appointment  of  Joint  Boards  could 
be  generally  enforced  by  Parliament  is,  therefore,  very 
doubtful ;  but  they  have  in  several  instances  been 
established  by  special  Acts,  and  their  establishment 
should  certainly  be  facilitated  in  every  way.  If  all 
disputes  between  I^ocal  Authorities  concerning  the 
formation  and  action  of  such  Boards  (such,  for 
instance,  as  the  proposal  to  charge  higher  gas  rates 
to  more  distant  areas  on  account  of  leakage)  could 
be  referred  to  the  Commission  the  establishment  of 
which  will  be  advocated  in  the  next  chapter,  the 
abolition  of  outside  trading  by  the  formation  of 
Joint  Boards  might  be  facilitated. 

1  M.T.R.,  Qs.  212,  867. 


CHAP.  XII.]  CORRUPTION  379 

(28)  Passing  on  to  discuss  questions  unconnected 
with  prices,  probably  the  most  serious  evil  to  be  anti- 
cipated from  Municipal  Trade  is  municipal  corruption  ; 
and  here  we  have  to  consider  whether  the  law  can  be 
so  amended  as  to  lessen  this  danger.  It  has  been 
suggested  as  a  safeguard  that  all  voters  in  the  pay  of 
any  public  body  should  be  disfranchised  as  far  as  the 
election  to  that  body  is  concerned.^  Such  a  reform 
may  well  be  urged  even  by  those  who  generally 
advocate  a  widely  extended  franchise ;  for  it  would 
undoubtedly  produce  beneficial  results  by  removing 
the  temptation  felt  by  candidates  to  endeavour  to 
catch  the  votes  of  the  employees  by  making  objec- 
tionable promises.  But  in  my  judgment  there  is 
practically  no  chance  of  such  a  reform  now  being 
adopted.  A  preferable  scheme  would  be  to  allow 
the  municipal  employees,  if  they  were  sufficiently 
numerous  in  any  locality,  to  be  separately  represented 
on  the  Council ;  to  incorporate  them,  as  it  were, 
into  a  separate  constituency  returning  one  or  more 
members.  No  one  would  thus  be  disfranchised  ;  the 
representative  of  the  employees  would  be  an  open 
advocate  of  their  claims,  and  his  position  would  be 
one  which  might  honourably  be  held  by  any  man  ; 
and  the  other  constituencies  would  be  freed  from  the 
corrupting  influence  of  paid  voters.  Any  such  plan 
would,  no  doubt,  introduce  complications  into  the 
electoral  system.  These  difficulties  might,  however, 
be  overcome ;  but  what  could  not  be  overcome 
would  be  the  objection  of  the  "practical"  English- 
man to  all  "  faddist "  proposals  ;  that  is,  to  all  novel 
schemes  the  merits  of  which  he  cannot  readily 
appreciate.       There     are,     in     fact,     no     additional 

1  M.T.il.,  Qs.  1947,  2304. 


380  SUGGESTED   LEGISLATION  [chap.  xii. 

statutory  safeguards  against  municipal  corruption 
known  to  me  which  Parhament  could  now  be  in- 
duced to  adopt. 

(29)  As  regards  the  check  on  commercial  progress 
due  to  the  introduction  of  a  centralised  system, 
which  is  the  other  main  objection  to  Municipal 
Trade,  it  is  inherent  in  the  system,  and  can  hardly 
be  mitigated  by  legislation.  It  has  been  seen  that 
municipalities  are  apt  to  adopt  what  may  be  described 
as  a  "  dog  in  the  manger  "  policy.  Provisional  Orders 
are  taken  out  by  public  bodies  with  little  intention  of 
utilising  them,  but  rather  with  the  view  of  preventing 
private  traders  from  entering  the  field.  Some  change 
might  be  made  in  the  direction  of  dealing  more 
drastically  with  the  question  of  time  limits  for  the 
completion  of  public  works ;  and  no  doubt  some 
little  good  might  be  done  in  this  way.^  But  the 
law  will  never  be  able  to  prevent  the  placing  of 
industries  in  public  hands  from  producing  a  deaden- 
ing effect  until  it  is  able  to  alter  human  nature. 

(30)  Certain  questions  connected  with  the  law, 
or  the  methods  of  framing  or  administering  the 
law,  with  regard  to  certain  matters  of  less  import- 
ance are  worthy  of  careful  consideration.  According 
to  the  present  practice  of  Parliament,  either  the 
authorities  of  the  Houses,  or  one  of  the  government 
departments,  have,  in  effect,  the  power  of  making 
municipalities  and  private  promoters  strike  out  clauses 
from  Bills  and  Provisional  Orders  which  are  in  certain 
respects  held  to  be  objectionable.  For  example. 
Local  Authorities  when  not  forced  to  supply  goods, 
would  not  now  be  allowed  to  obtain  powers  of 
recovery    of   debts    in    excess    of    those    ordinarily 

iM.T.R.,  Q.  3961. 


CHAP.  xiL]  MUNICIPAL   AUDIT  381 

possessed  by  private  traders ;  though  such  powers 
are  sometimes  asked  for.^  Nor  would  the  power 
to  manufacture  electrical  or  gas  fittings  normally  be 
granted  to  municipalities,  because  these  trades  are  at 
present  held  to  be  unsuitable  for  municipalisation  ; 
though  how  long  such  limitations  will  survive  it 
would  not  be  safe  to  predict.^  Unfortunately,  muni- 
cipalities have  sometimes  acquired  such  objection- 
able powers  when  they  have  bought  undertakings 
from  private  companies  whose  concessions  date  from 
times  when  the  authorities  were  less  careful.  There 
appears  to  be  a  difference  of  opinion  as  to  whether 
these  matters  could  be  set  right  when  the  industries 
in  question  pass  into  public  hands ;  but  this  should, 
without  doubt,  be  effected  as  far  as  possible.^ 
Altliough  it  is  anticipating  the  discussion  on  private 
trade,  it  may  be  here  noted  that  it  follows  from 
these  considerations  that  private  companies  obtaining 
special  Acts  or  Provisional  Orders  to  enable  them 
to  undertake  monopolies  should  as  a  rule  not  be 
granted  any  powers  which  would  be  held  to  be 
objectionable  if  the  works  were  municipalised ;  a 
principle  already  partially  recognised/ 

(31)  In  considering  whether  Municipal  Trade 
should  be  encouraged  or  discouraged,  it  is  of  the 
greatest  importance  that  we  should  be  able  to 
ascertain  the  exact  truth  with  regard  to  existing 
public  enterprises.  At  present  our  knowledge  of  the 
average  financial  results  of  the  municipal  trades  of 
England  is  very  defective,  because  of  the  "  most  com- 
plicated and  confusing  shape  in  which  the  accounts 
of    most     local     bodies     are    drawn     up."^     Many 

1  M.T.R.,  Q.  497.  2  /j.;;,/^  q  433 

3  Ibid.,  Qs.  541,  626,  and  3946  <  Ibid.,  Q.  447. 

'''Economic  Journal^  March  1901,  p.  21,  J.  Row-Fogo. 


382  SUGGESTED   LEGISLATION  [chap.  xn. 

Local  Authorities  now  appoint  tlieir  own  auditors 
and  the  Councils  of  our  large  cities  would  very 
probably  resist  any  reform  wliich  actually  abolished 
this  privilege.  But  the  law  insures  that  the  auditors 
of  private  companies  should  be,  as  far  as  possible, 
independent  of  their  directorates,  the  object  being 
to  safeguard  the  shareholders,  and  to  enable  them 
to  obtain  correct  information  as  to  the  finances  of 
the  business ;  and  without  doubt  the  law  should 
in  the  same  way  insure  the  independence  of  the 
municipal  auditor  from  all  interference  on  the  part 
of  Town  Councils  thus  safeguarding  the  interests 
of  the  ratepayers,  and  probably  facilitating  them  in 
their  endeavours  to  form  correct  judgments  on 
questions  affecting  the  finances  of  their  munici- 
palities. No  doubt,  the  best  plan  would  be  for 
all  municipal  auditors  to  *  be  appointed  by  the 
Central  Government,  as  is  at  present  the  case  with 
the  London  County  Council  and  with  most  local 
governing  bodies  other  than  JNlunicipal  Corporations. 
Auditors  thus  appointed  should  not  be  satisfied 
with  merely  seeing  that  all  the  payments  made 
were  covered  by  the  law,  but  should  carry  out 
a  thorough  audit  on  commercial  principles.  The 
report  of  the  auditors  should  be  printed  and  a 
copy  given  to  every  ratepayer ;  just  as  every 
shareholder  sees  the  company  auditor's  report.  The 
powers  and  duties  of  all  Government  auditors  should 
be  clearly  defined,  and  probably  increased  so  as  to 
enable  them  to  deal  more  effectively  with  illegal 
payments.  But  if  Parliament,  having  in  view  the 
susceptibilities  of  the  great  municipalities,  could 
not  be  induced  to  face  such  reforms  as  these,  it 
might,  at  all  events,  enact  that  the  approval  of  the 


CHAP,  xii]  CONCLUSIONS  383 

Local  Government  Board  should  be  obtained  to  the 
appointment  of  any  municipal  auditor,  a  measure 
which  would  enable  a  certain  pressure  to  be  applied 
with  the  view  of  securing  gi-eater  uniformity  and 
clearness  in  the  accounts  of  municipal  enterprises.^ 

(32)  In  this  chapter  we  have  been  considering, 
not  what  trades  Parliament  should  permit  muni- 
cipalities to  undertake,  but  what  laws  could  be 
passed  which  would  minimise  the  disadvantages 
arising  from  such  municipal  trade  as  is  undertaken. 
Some  modification  might  be  made  with  advantage 
in  the  legislation  affecting  sinking  funds  ;  preferential 
charges  should  be  prohibited ;  and  auditors  should 
always  be  appointed  by  the  Central  Government ; 
but  in  addition  to  these  reforms,  little,  it  appears, 
can  be  done  to  lessen  the  dangers  and  disadvantages 
arising  from  the  public  management  of  industries. 
It  must,  in  fact,  be  admitted  that,  even  if  all  these 
changes  were  made,  the  total  reform  would  not 
be  of  sufficient  importance  to  affect  materially  the 
comparison  between  public  and  private  trade. 

1  M.T.R.,  Qs.  356,  555,  3162,  and  3865.  The  subject  of  Municipal 
Audit  is  now  being  considered  by  a  Joint  Committee  of  Lords  and 
Commons.  See  Appendix.  See  also  with  regard  to  the  United  States, 
Annals  of  the  Am.  Acad.  of-Polit.  and  Soc.  Science,  Prof.  J.  R.  Commons, 
vol.  V.  p,  873. 


XIII 

LEGISLATION   AFFECTING    PRIVATE    TRADE 

(1)  Certain  social  reformers  have  argued  in  favour 
of  Municipal  Trade  that  it  is  practically  impossible 
adequately  to  regulate  the  scale  of  wages  or  the  hours 
of  labour  of  workmen  in  private  trades,  and  that  the 
present  industrial  system  must,  therefore,  be  wholly 
abandoned.     To   reply  to  such  a  contention  would 
open  up  the  whole  question  of  Socialism,  a  discussion 
beyond   the   scope   of    this   volume.      But   if  it   be 
admitted   that  private   trade   and    Municipal    Trade 
must   exist    side   by  side,   there    appears   to   be   no 
reason     why    all    legal    compulsion     applicable     to 
private   employers  with   reference  to  the  treatment 
of    their    employees    should    not    be   made   equally 
applicable   to   Local   Authorities   with   reference    to 
the  treatment  of  their  employees.     Any  such  legisla- 
tion affecting  private  trade  should  also  affect  Muni- 
cipal Trade,  and  no  such  legislation  should,  therefore, 
affect  the  comparison  between  the  two.     I^egislation 
with  regard   to  the   price   and   quahty   of  goods   is 
generally    unnecessary    in    competitive    trade ;    but 
where   it   is   necessary,   it   should    be    applicable   to 
both  public  and  private  trade.     It  is  not,  therefore, 
necessary   here    to    discuss    the   advantages   or   dis- 
advantages   which    would    result    from    legislation 
affecting  competitive   trades   under   private   manage- 

384 


CHAP.  XIII.]  MONOPOLIES  IN  PRIVATE  HANDS  385 

ment  whether  such  legislation  be  for  the  protection 
either  of  tlie  workman  or  of  the  consumer. 

(2)  With  regard  to  trades  tending  to  become 
monopolies  the  case  is  different.  Exceptional  legisla- 
tion has  been  applied  to  these  trades,  and  it  is  a 
question  whether  this  legislation  does  not  require 
amendment  to  make  it  suitable  to  modern  conditions. 
It  is  only  certain  industries  the  management  of  which 
is  at  present  undertaken  by  municipalities  to  any 
considerable  extent ;  and  those  who  see  dangers 
and  disadvantages  in  any  wide  extension  of  muni- 
cipal trading,  should  regard  it  as  a  duty  to  consider 
whether  it  is  not  possible  by  legislation  to  lessen 
the  evils  now^  arising  from  the  private  management 
of  all  trades  likely  to  be  municipalised.  In  this 
way  alone  can  the  more  substantial  arguments  in 
favour  of  Municipal  Trade  be  really  weakened. 
The  movement  in  favour  of  the  public  management 
of  many  industries  is  so  vigorous  that  a  merely  pas- 
sive resistance  will  do  little  to  hinder  it;  and,  both 
for  this  reason  and  because  the  existing  legislation 
with  regard  to  private  trade  is  in  an  unsatisfactory 
state,  its  reform  should  be  taken  in  hand  at  once. 
The  revolution  in  the  methods  of  modern  industry 
is  making  such  reforms  more  and  more  necessary. 
The  increasing  use  of  machinery,  the  discovery  of  the 
economy  arising  fi'om  great  industrial  combinations, 
and  the  relative  increase  of  the  urban  population, 
all  tend  to  render  competition  less  probable  and 
less  effective.  On  the  other  hand,  ^^arious  social 
changes  have  contributed  to  increase  the  strength, 
though  perhaps  not  the  wisdom,  of  the  opposition 
to  the  private  management  of  many  trades.  It 
is    these    modern    conditions    which     foster    Muni- 

2  B 


386  PRIVATE   TRADE  [chap.  xm. 

cipal  Trade,  and  wliicli  make  it  more  than  ever 
advisable  to  modify  the  existing  legislation  affecting 
private  trade. 

(3)  The  qnestions  to  be  considered  may  be 
divided  under  two  heads — (1)  What  regulations 
should  be  enforced  with  regard  to  private  companies 
in  future  starting  trades  tending  to  become 
monopolies  ?  That  is  to  say,  what  should  be  done 
when  the  question  is  not  complicated  by  previous 
legislation  or  existing  contracts  ?  (2)  What  changes 
should  be  made  in  the  legislation  affecting  companies 
already  in  the  possession  of  concessions,  and  what 
regard  should  be  paid  to  the  rights  thus  acquired  ? 
It  will  be  best  to  begin  by  considering  the  first  of 
these  questions  ;  and  then,  after  deciding  what  is  the 
wisest  course  of  action  when  the  slate  is  clean,  to  go 
on  to  consider  how  far  it  is  just  and  practicable  to 
bring  existing  companies  under  any  proposed  new 
regulations. 

(4)  In  opening  this  discussion,  we  should  first 
attempt  to  obtain  a  general  idea  of  the  ends  which 
the  Legislature  should  hold  in  view  when  amending 
the  present  laws.  On  the  one  hand,  as  regards 
the  consumer,  he  should  be  enabled  to  get  the  best 
possible  return  for  his  money ;  whilst,  as  regards 
the  ratepayer,  the  unearned  increment  should,  as 
far  as  possible,  be  made  to  become  public  property. 
On  the  other  hand,  the  promoters  and  managers  of 
private  industries  should  be  in  every  way  encouraged 
in  order  that  the  public  may  reap  the  advantages  due 
to  the  rapid  development  of  the  trades  initiated  and 
managed  by  them.  These  are  the  antagonistic 
conditions  which  have,  in  nearly  all  cases,  to  be 
reconciled    by    a    compromise    based    on    no    very 


CHAP  xiii.]  TERMS   OF  CONCESSIONS  387 

scientific  principle.  In  the  United  States  during 
the  middle  of  the  nineteenth  century,  "  an  epidemic 
"  for  helping  private  enterprise  with  public  funds 
"passed  over  the  land";  the  object  being  to  make 
the  progress  of  commercial  development  as  rapid  as 
possible ;  and  in  America  generally  the  mistake 
seems  to  have  been  made  of  paying  too  much 
attention  to  this  side  of  the  question.^  In  England 
the  electrical  trade  was  at  first  greatly  crippled  by 
the  strictness  of  the  terms  offered  to  private 
promoters,  the  object  sought  being  to  secure  various 
possible  future  advantages  for  the  pubhc ;  and  this 
is  an  example  of  the  opposite  error,  which  has  been 
the  one  most  commonly  made  by  us  in  recent  years. 
To  discuss  the  ultimate  basis  on  which  should  rest 
all  decisions  on  questions  arising  on  account  of 
the  conflict  of  these  opposing  principles  would 
lead  us  very  far  afield.  How  shall  we  weigh  the 
advantages  of  an  even  distribution  of  wealth  against 
the  advantages  of  an  increase  in  the  total  volume  of 
wealth  ?  How  shall  we  compare  the  benefits  felt  by 
an  existing  generation  as  the  result  of  rapid  develop- 
ment against  the  harmful  effects  felt  by  the  next 
generation  in  consequence  of  the  progress  made  not 
having  been  in  the  right  direction  ?  These  are  in 
truth  the  underlying  problems  in  such  discussions ; 
but  here  all  that  can  be  said  is  that  these  antagonistic 
principles  should  always  be  clearly  kept  in  view  when 
the  various  questions  are  being  discussed.  We  must 
endeavour  to  balance  the  demand  for  rapid  develop- 
ment or  for  the  immediate  satisfaction  of  wants 
against  the  demand  for  low  prices  and  light  taxation, 

1  "  Muuicipal  Trading   in   England   and   tlie    United    States,"    Hon. 
R.  P.  Porter,  p.  6. 


388  PRIVATE   TRADE  [chap.  xiii. 

and  to  obtain  as  suitable  a  compromise  as  possible 
between  these  antagonistic  demands. 

(5)  If  it  could  be  shown,  as  regards  the  past, 
that  a  fair  compromise  had  been  arrived  at,  and 
that  both  of  these  opposing  principles  had  been 
duly  considered,  nothing  more  would  have  to  be 
said  on  this  subject.  But  this  clearly  has  not  been 
the  case.  On  the  one  hand,  concessions  have 
often  been  offered  to  private  promoters  with  little 
thought  as  to  whether  the  terms  proposed  make 
it  possible  or  impossible  for  an  adequate  return 
to  be  made  on  the  capital  invested.  On  the  other 
hand,  very  little  consideration  has  generally  been 
given  to  the  means  of  enforcing  attention  to  the 
complaints  of  consumers.  With  regard  to  private 
gas  and  electric  supplies  in  England,  for  example, 
householders  may  grumble  if  badly  served,  but 
they  can  do  little  more  than  grumble,  unless  it 
be  to  advocate  municipalisation.  Where  such  a 
right  as  that  of  interfering  with  the  public  streets 
is  granted  to  a  private  company,  and  where  a 
monopoly  is  thus  created,  it  is  unreasonable  for 
the  State  not  to  retain  the  right  to  enforce  suit- 
able regulations  safeguarding  the  consumer. 

(6)  Having  sketched  out  the  objects  to  be  held 
in  view,  and  it  having  been  seen  that  these  objects 
have  been  unequally  attended  to  in  the  past,  the 
question  remains  as  to  whether  it  is  not  possible 
now  to  introduce  beneficial  reforms.  The  pro- 
moters and  managers  of  private  companies  may  be 
trusted,  as  a  general  rule,  to  advocate  with  at  least 
sufficient  force  the  necessity  for  progress  and 
development,  and  the  consequent  objections  to  the 
restriction    and     taxation     of    concessions.       Local 


CHAP.  xiiL]  THE  GRANTING  OF  CONCESSIONS  389 

Authorities  would  naturally  look  forward  to  acting 
as  the  mouthpiece  of  the  discontented  consumer 
supplied  by  any  monopoly,  demanding  for  him 
lower  prices,  better  quality,  or  more  accommoda- 
tion ;  and  these  bodies  can,  therefore,  be  trusted 
to  advocate  the  introduction  of  clauses  into  con- 
cessions designed  for  the  purpose  of  safeguarding 
the  consumer.  Here,  therefore,  we  have,  as  it  were, 
the  two  opposing  counsels  ready  to  argue  the  case 
before  the  tribunal,  whatever  it  may  be,  to  which  is 
entrusted  the  duty  of  deciding  on  the  terms  under 
which  private  companies  are  to  be  permitted  to  trade. 
But  to  whom  should  this  duty  be  entrusted  ?  Who 
should  act  as  the  judge  in  such  a  Court  ? 

(7)  It  must,  in  the  first  place,  be  remembered 
that  the  questions  which  have  to  be  decided  in- 
clude not  only  the  terms  of  the  original  concession, 
but  also  various  decisions  as  to  the  justice  of  the 
complaints  brought  forward  after  the  concession  has 
been  granted,  either  by  consumers  or  by  Local 
Authorities  acting  for  the  consumers  generally. 
Though  it  need  not  be  so  arranged,  yet  it  would 
be  advisable  that  both  classes  of  questions  should  be 
decided  by  the  same  tribunal ;  for,  in  this  way,  it 
can  best  be  assured  that  all  decisions  on  complaints 
are  decided  in  harmony  with  the  understanding 
between  the  parties  which  existed  when  the  con- 
cession was  granted ;  and,  moreover,  the  technical 
knowledge  acquired  by  the  adjudicating  body  in 
one  set  of  enquiries  will  be  useful  in  the  other. 
One  tribunal  should,  therefore,  arbitrate  both  as  to 
the  terms  of  the  concessions  to  be  gi-anted,  and 
also  as  to  the  disputes  arising  out  of  these  con- 
cessions after  they  have  been  granted. 


390  PRIVATE   TRADE  [chap.  xm. 

(8)  If  this  principle  of  one  tribunal  be  accepted, 
then  neither  the  Law  Courts,  nor  Parliamentary 
Connnittees,  nor  Government  Departments  are 
quite  suitable  for  the  work  to  be  done.  All  of 
these  have  done  excellent  work  in  the  past,  yet 
it  is  true  that  the  existing  system  is  capable  of 
improvement.  Should  the  municipality  itself  be 
judge  as  well  as  counsel,  thus  finally  deciding  on 
all  disputed  points  both  as  to  the  granting  and  as  to 
the  interpretation  of  concessions  ?  Although  Local 
Authorities  are  the  representatives  of  the  local 
public,  that  is,  of  the  persons  most  affected  by  the 
granting  of  any  rights,  yet  to  make  them  act  in 
this  dual  capacity  would  be  very  objectionable.  In 
the  first  place,  Local  Authorities  must  not  only 
undertake  the  duty  of  advocating  the  interests  of 
the  consumers,  but  they  must  also  advocate  the 
claims  of  ratepayers.  Now  the  claims  of  ratepayers 
and  consumers  are  often  antagonistic  to  each  other ; 
as,  for  example,  when  those  wanting  electricity 
demand  a  cheap  supply  and  when  ratepayers  hope 
that  the  comj)anies  concerned  will  be  forced  to 
pay  rents  into  the  municipal  treasuries  whatever 
might  be  the  effect  of  such  rents  on  the  price  of 
electricity ;  and  an  elected  body  cannot  be  an 
absolutely  impartial  judge  between  the  demands 
made  by  the  many  voters  who  are  ratepayers  and 
the  few  voters  who  may  become  consumers.  In 
the  second  place.  Local  Authorities,  whether 
mainly  concerned  to  defend  the  interests  of  the 
ratepayers  or  those  of  the  consumers,  would 
probably  give  but  scanty  consideration  to  the 
interests  of  the  promoters  or  shareholders  of  the 
companies  seeking  concessions ;   for,  the  majority  of 


CHAP.  XIII.]  THE  GRANTING  OF  CONCESSIONS  391 

even  the  more  thoughtful  representatives  would 
not  consider  it  their  duty  to  consider  that 
side  of  the  question.  This  is  a  fundamental  dis- 
qualification which  cannot  be  eradicated.  If  the 
arguments  of  the  capitalist  as  to  the  terms  of  con- 
cessions are  not  fairly  weighed  in  the  balance, 
capital  will  not  be  forthcoming,  and  the  works 
will  not  be  started.  As  to  the  disputes  which 
may  arise  after  the  granting  of  a  concession,  justice 
to  the  shareholders  means  that  the  concession  should 
be  interpreted  in  the  sense  in  which  it  was  under- 
stood when  it  was  made;  alarm  would  be  caused 
by  even  a  suspicion  felt  by  investors  as  to  the  possi- 
bility of  their  interests  being  injuriously  affected  by 
unexpected  decisions  as  to  their  rights  ;  and  such 
alarm  would  check  progress,  to  the  immediate  injury 
of  the  public  at  large.  It  is  essential  that  it  should 
be  known  that  the  judge  in  such  disputes  is  not 
prejudiced  against  the  shareholders'  interests,  and 
this  condition  makes  Local  Authorities  in  England 
peculiarly  unsuitable  bodies  to  act  as  arbitrators 
in  any  conflict  between  the  promoters  and  managers 
of  monopolies  on  the  one  hand,  and  the  consumers 
and  ratepayers  in  the  locahties  affected  on  the 
other.  In  other  countries,  elected  bodies  may  be 
unsuitable  for  exactly  the  opposite  reason ;  for 
many  instances  could  be  cited  of  municipalities 
paying  too  much  attention  to  the  demands  of 
capital,  especially  where  corruption  prevails  or 
where  the  shareholders  in  companies  demanding 
concessions  are  numerous  and  mostly  voters.  For 
all  these  reasons,  a  judicial  and  not  an  elected  body 
should  have  the  last  word  on  all  disputes  con- 
cerning concessions. 


392  PRIVATE  TRADE  [chap.  xiii. 

(9)  Whatever    be    the    nature    of    the    judicial 
body  appointed   to   decide   such   questions,  its  pro- 
ceedings must,  of  course,  be  largely  guided  by  the 
statute   creating   it.      But   it  would   be   almost  im- 
possible   adequately    to    protect     the     interests     of 
consumers  by  general  provisions  in  Acts  of  Parlia- 
ment,   because    the    possible     subjects     of    dispute 
would  be  so  numerous ;   and  some  discretion  must 
be   allowed   to   the   arbitrator   if   the   protection   of 
these  interests  is  to   be   attempted.      Or   it  would, 
perhaps,  be  more  correct  to   say  that,  in   all  cases 
where   price,    quality,   or    increased    accommodation 
are  the  subjects  in  dispute,  it  is  essential  that  the 
judge   should   rely  to  a  certain  extent  on  his  own 
special     and     technical     knowledge     in    giving    his 
decisions.      For  this  reason,  this  matter  is  not  one 
which   should   be   left  in   the   hands   either   of   the 
ordinary   courts   of    law   or    of    Local    Authorities. 
As  regards  the  latter,  a  small  municipality  would  be 
unable  to  cope  with  the  expert  advisers  of  power- 
ful private  companies,  such  as  tramway  construction 
companies ;  and  the  knowledge  that  this  was  the  case 
would  make  it  unlikely  that  a  wise  decision  would 
be  arrived  at.     And  the  committees  of  large  munici- 
palities, not  understanding  the  questions  thoroughly 
themselves,  would  be  too  much  influenced  by  their 
own  technical  advisers. 

(10)  In  some  cases,  as  just  observed,  Local 
Authorities  might  be  tempted  to  favour  unduly 
the  capitalists  in  negotiations  with  regard  to  con- 
cessions ;  in  which  case  the  consumers  and  the 
ratepayers  would  have  no  proper  advocate  to 
represent  their  interests.  To  guard  against  this 
danger,   something    more   might    be    done    by   the 


CHAP.  XIII.]         CONCESSIONS   COMMISSION  393 

Legislature,  model  clauses  to  be  normally  in- 
serted in  new  concessions  being  perhaps  drawn  up 
more  frequently  and  under  more  definite  authority, 
and  some  method  being  adopted  of  insuring 
that  the  attention  of  the  Legislature  would  be 
called  to  any  departure  from  these  models.  But 
"it  is  certain  that  as  between  central  administra- 
"  tive  control  and  legislative  control,  the  former  has 
"  been  much  more  efficient  in  keeping  Local 
"  Authorities  within  bounds  ;  "^  and  it  would  conse- 
quently be  well  that  a  representative  of  the  Central 
Government,  that  is  either  of  the  Local  Govern- 
ment Board  or  of  the  Board  of  Trade,  should  have 
the  right  to  appear  before  any  tribunal  created  to 
deal  with  these  questions. 

(11)  Thus,  in  deciding  on  the  terms  of  con- 
cessions and  in  dealing  with  the  disputes  arising 
under  concessions  already  granted,  it  appears  that 
there  are  four  functions  to  be  performed,  and  that 
there  should  be  four  parties  to  perform  them. 
The  promoters  and  the  proprietors  of  the  private 
companies  concerned  will  urge  the  necessity  of  new 
schemes,  and  will  advocate  the  views  of  the  share- 
holders. The  Local  Authorities  will  represent  the 
interests  of  the  consumers  and  the  ratepayers.  The 
Local  Government  Board  or  the  Board  of  Trade 
will  see  that  this  duty  is  performed,  and  will  call 
attention  to  any  departures  from  model  clauses. 
And,  lastly,  some  judicial  body  should  be  established 
to  act  as  judge,  and  to  give  a  decision  on  the  ques- 
tions brought  before  it.  This  judicial  body  must  be 
of  a  technical  character,  and  should  be  subject  to  no 
local  influences,  whether  of  shareholders  or  of  con- 

^  "  English  Local  Government  of  To-day,"  Maltbie,  p.  202. 


394  PRIVATE   TRADE  [chap.  xm. 

sumers.  It  would  be  best  that  such  a  body  should 
be  nominated  by  the  Central  Government,  and  we 
are,  in  fact,  driven  to  the  conclusion  that  a  perma- 
nent Commission  or  Commissions  should  be  ap- 
pointed to  deal  with  all  questions  affecting  con- 
cessions. 

(12)  No  Commission  exactly  corresponding  to 
that  proposed  to  be  established  exists  in  England, 
the  Light  Railway  Commission  created  by  the  Act 
of  1896  coming  nearest  to  it.  Private  Bill  Com- 
mittees in  Parliament  are  only  concerned  with  the 
passing  of  the  bills  by  which  the  concessions  are 
granted ;  and  in  their  deliberations  the  interests  of 
the  public  have  often  been  most  inadequately  con- 
sidered ;  as,  for  example,  the  little  care  that  is  taken 
to  force  railway  companies  to  make  proper  arrange- 
ments to  facilitate  the  interchange  of  passenger  traffic 
between  different  systems.  The  Railway  and  Canal 
Commission  has  nothing  to  do  with  the  granting 
of  concessions  to  companies ;  and,  on  the  other 
hand,  the  Light  Railway  Commissioners  have  no 
power  of  interference  after  the  concessions  have 
been  granted.  In  the  United  States  the  problem 
has  been  dealt  with  more  satisfactorily ;  and  the 
Massachusetts  Commission  will  be  briefly  described 
as  an  example  of  the  way  in  which  an  apparently 
successful  body  has  been  created  elsewhere.  The 
powers  possessed  by  this  Commission  are  very 
drastic,  and  a  brief  description  of  them  will  serve 
as  an  introduction  to  the  discussion  as  to  the  powers 
which  ought  to  be  granted  to  an  English  Commis- 
sion, if  one  were  established. 

(13)  "The  highest  development  of  public 
"control   over   private   lighting   corporations   in  the 


CHAP,  xiii]      MASSACHUSETTS  COMMISSION  395 

"  United  States  is  that  exercised  in  Massachusetts 
"  by  the  State  Gas  and  Electric  Lighting  Com- 
"  mission.  This  Commission  was  estabhshed  in  1885 
"  to  supervise  gas  companies ;  and  two  years  later 
"  its  powers  were  extended  to  include  electric  light 
"  companies.  It  consists  of  three  members  appointed 
"  by  the  Governor  and  Executive  Council  for  three 
"  years,  one  member  retiring  each  year.  The 
"  members  receive  a  salary,  and  are  not  permitted 
"to  engage  in  any  other  business.  They  can  be  re- 
" moved  only  for  cause,  after  notice  and  a  hearing."^ 
It  is  their  duty  to  see  that  the  law  is  obeyed, 
and  they  have  practically  unhmited  inquisitorial 
powers.  Upon  receipt  of  a  complaint,  and  after 
public  hearing,  they  may  order  any  reduction  in 
price  or  improvement  in  quality.  "In  these  in- 
"  vestigations  the  Commission  does  not  act  simply 
"  as  a  Court,  bound  by  legal  rules  of  evidence  and 
"  procedure ;  but  proceeds  on  its  own  initiative,  and 
"applies  all  its  knowledge  concerning,  not  only  the 
"  case  in  hand,  but  the  business  of  every  company 
"  in  the  State."  ^  The  concessions  are  in  theory 
perpetual ;  but  in  reality  this  arrangement  makes 
them  revocable  at  the  discretion  of  the  Commission 
at  any  time.  The  result  is  that  there  is  a  marked 
absence  of  all  technicalities,  reservations,  and  safe- 
guards in  these  concessions ;  as  they  are,  in  fact, 
unnecessary.  In  the  Report  of  the  Special  Com- 
mittee appointed  to  investigate  the  relations  between 
cities  and  towns  and  street  railway  companies  in 
Massachusetts  in  1898,  it  is  stated  that  this  plan 
works  well,  though  in  theory  it  "is  to  the  last  degree 

"  Municipal  Administration,"  Fairlie,  p.  290. 
2  ji^i^i^  p.  290. 


396  PRIVATE   TRADE  [chap.  xiii. 

"  illogical "  ;  and  that  it  was  very  noticeable  that  no 
"  change  was  advocated  by  the  representatives  of  the 
"  municipalities,  or  of  the  companies,  nor  apparently 
"  did  the  suggestion  of  such  a  change  commend  itself 
"  to  either."  *'  The  companies  preferred,  on  the  whole, 
"  a  franchise  practically  permanent,  though  never 
"  absolutely  certain,  to  a  fixed  contract  tenure  for  a 
"  shorter  term,  subject  to  the  danger  of  alteration  at 
"every  periodical  renewal."^  Such  an  arrangement 
would  be  expected  to  frighten  away  capital ;  but 
the  answer  is  that  it  apparently  has  not  done  so.'^ 

(14)  In  proceeding  to  discuss  the  functions  of 
any  such  Commission,  it  is  to  be  observed  that,  if 
in  accordance  with  the  suggestion  already  made, 
it  were  decided  to  place  in  its  hands  the  granting 
of  municipal  concessions  to  private  companies. 
Parliament  would,  nevertheless,  in  all  probability 
desire  to  keep  the  ultimate  control  in  its  own 
hands.  If  this  were  the  case,  it  might  be  enacted 
that  the  decisions  of  the  commission  should  require 
the  sanction  of  the  Legislature  in  the  same  manner 
as  is  the  case  at  present  with  regard  to  Provisional 
Orders  ;  a  system  which  would  thus  be  largely  or 
entirely  superseded.  Parliament  cannot  constitu- 
tionally divest  itself  of  the  right  of  passing  private 
bills ;  and  the  passing  of  a  general  Act  creating 
a  Commission  and  giving  to  it  the  power  to  deal 
with  water,  gas,  electrical,  tramway,  and  other 
similar  schemes,  would  not  prevent  attempts  being 

^  "  Relations  between  Cities  and  Towns  and  Street  Railways,"  Massa- 
chusetts, Special  Committee,  1898,  jj.  18. 

'^  See  also  "The  Gas  Commission  of  Massachusetts,"  l;y  J.  H.  Gray, 
Quart.  Journal  of  Economics,  p.  209,  vol.  xiv.,  1898-1900 ;  also  the  Report 
of  the  Special  Committee  of  the  New  York  Assembly  on  "  the  Municipal 
Ownership  of  Street  Rail-Roads"  of  1896,  p.  22,  to  show  that  a  somewhat 
similar  arrangement  is  there  approved  for  street  railways. 


CHAP,  xiii]        CONSENT  OF   AUTHORITIES  397 

made  to  evade  the  jurisdiction  of  such  a  Com- 
mission by  pri^-ate  legislation.  To  meet  this 
difficulty,  Parliamentary  Standing  Orders  should 
be  made  to  provide  that  all  bills  by  which  it 
is  sought  to  obtain  any  such  rights  for  private 
companies  should  first  be  referred  to  the  Com- 
mission, and  that  no  bill  should  be  proceeded 
with  unless  the  Commission  reported  that  the 
proposal  it  contained  was  of  an  exceptional  nature, 
rendering  special  legislation  advisable. 

(15)  The  next  point  to  be  considered  with  regard 
to  the  powers  to  be  placed  in  the  hands  of  such  a 
Commission  is  whether  the  consent  of  the  Local 
Authorities  concerned  should  be  necessary  before 
the  Commission  could  grant  any  concession.  This 
is  a  matter  of  considerable  difficulty.  The  Local 
Authorities  interested  should  undoubtedly  have 
the  right  of  appearing  before  the  Commission,  and 
great  deference  should  and  would  always  be  paid  to 
their  wishes  and  views.  But  to  give  to  the  Local 
Authorities  an  absolute  veto  on  all  concessions  is 
to  place  a  considerable  temptation  in  their  way ; 
for  they  may  use  that  veto  either  to  keep  the  field 
open  for  themselves  or  as  a  threat  to  extort  rents 
or  other  services  from  private  companies.  If  the 
veto  was  only  used  to  block  schemes  really  held 
to  be  objectionable  the  result  would  probably  be, 
on  the  whole,  beneficial ;  but,  when  used  with 
the  above-named  objects  in  view,  it  may  seriously 
impede  commercial  progress.  It  appears  to  me  that 
it  would  be  unwise  to  give  to  any  body  which  is  not 
responsible  for  the  final  decision  the  power  of  ab- 
solutely preventing  the  granting  of  any  concession.^ 

1  M.T.R.,  Qs.  1527,  1666,  3953,  and  3959. 


398  PRIVATE   TRADE  [chap.  xiii. 

(IG)  In  establishing  a  Commission  to  deal  with 
monopolies,  it  would  be  advisable  to  decide  the 
broad  lines  on  which  concessions  should  be  gi'anted. 
In  discussing  such  questions,  it  should,  however, 
be  remembered  that  most  of  the  reforms  here 
suggested  could  be  adopted  even  if  concessions 
were  granted  as  at  present  by  private  bills  or  by- 
Provisional  Orders.  That  some  reform  is  necessary 
can  hardly  be  doubted  when  the  want  of  system 
and  the  absence  of  guiding  principles  in  the  exist- 
ing arrangements  are  realised.  For  example,  the 
general  policy  of  Parliament  has  been  to  refuse  to 
allow  competition  between  Local  Authorities  and 
authorised  gas  undertakings ;  but  to  permit  such 
competition  against  electrical  undertakings,  both 
by  Local  Authorities  and  by  rival  companies ;  ^ 
an  example  which  raises  the  broad  issue  whether  it 
is  expedient,  and,  if  so,  in  what  circumstances,  to 
grant  an  absolute  monopoly  to  private  traders. 

(17)  It  has  already  been  seen  in  a  previous 
chapter  that  amalgamations  frequently  take  place 
between  rival  private  companies  undertaking  trades 
for  which  concessions  are  required,  and  that,  con- 
sequently, competition  is  not  maintained.  The 
main  cause  of  this  tendency  is  the  desire  to  avoid 
the  waste  of  capital  due  to  competition  between 
rival  firms  and  the  hope  of  thus  obtaining  a  corre- 
sponding increase  of  profits.  But,  whatever  may  be 
the  cause,  experience  shows  that  competition  in 
a  considerable  number  of  trades  is  very  apt  to 
die  a  natural  death ;  and  that  any  attempt  to 
keep  it  alive  may  be  attended  with  peculiar  dis- 
advantages.     The     frequent     breaking    up    of    the 

1  M.T.R.,  Qs.  47,  195. 


CHAP,  xiii]    PROHIBITION   OF   COMPETITION  399 

streets    when    rival    companies    are    competing    for 
the  supply   of  water,  gas,  or  electricity,  is  often  an 
intolerable  nuisance.      Then,  again,"^  the   public   can 
get  better  terms  from  private  proprietors  by  gi'ant- 
ing   to   them  absolute  monopolies,  and  nothing  will 
be   lost   by   such   grants  if  direct  competition  is  in 
all   circumstances    certain    to    cease.      Lastly,    the 
"  wars "      between      rival      companies      are     often 
disastrous   to   all   but   company   promoters.     If,   for 
example,    one   company   has   acquired   the   right    to 
supply   gas   in   a   certain   locahty,    and    if,    for    the 
sake     of     creating     competition,     a    concession     is 
gi'anted   to   a   second    company,    then    this    second 
company     will     be    tempted    to    use    its    acquired 
rights  to   force  the  first  company  to  buy  up  both 
these   rights   and   any   works    that    may   have   been 
constructed.     American   experience   proves   that    an 
attack  of  this  kind  is  generally  a  far  more  profit- 
able    undertaking     than    the    actual    establishment 
and   maintenance   of  a   rival   concern ;   and   that   it 
is   a   proceeding   difficult   to  prevent.     Transactions 
of  this  kind  are  not  only   of  no  use  to  consumers 
or  ratepayers,  but  they  are  positively  harmful;  for 
they    render    it    impossible   for   the   attacked   com- 
panies  to    serve  the   public   as   well   as   they  could 
have     done     if    they     had     not    thus     been     bled. 
Where     there     is     absolute     free     trade,     the     old 
company  would   not  allow  itself  to  be  "  squeezed " 
by  the  new  one  in  this  way  ;   because  there  would 
be  no  advantage  in  buying  up  one  concession  when 
another   concession   would   be   granted   immediately 
to   any   fresh   applicant.      Thus,   though   free   trade 
is     the    best    commercial    system,    an    attempt    to 
regulate  trade    on    any    system    half-way    between 


400  PRIVATE   TRADE  [chap.  xm. 

the  system  of  free  trade  and  the  system  of  absolute 
monopoly  is  likely  to  produce  the  worst  possible 
results.  According  to  the  report  of  a  committee 
in  the  United  States,  "wherever  there  was  more 
"  than  one  company  operating  in  the  streets  of  a 
"  city,  there  was  liable  to  be  a  contest,  generally 
"  over  grants  for  extensions,"  and  "  the  worst  condi- 
"  tions  were  found  in  localities  where  rival  companies 
"  were  contending  for  grants  in  public  ways."  ^  In 
France,  in  almost  every  case  it  has  been  deemed 
expedient  to  grant  tramway  concessions  in  each 
town  to  one  company  only  in  order  "to  secure 
"  coherence  and  uniformity  in  method,  to  secure 
"  transfer  privileges,  and  to  focus  responsibility  "  ;  ^ 
and  this  is,  I  believe,  the  right  system  to  adopt  in 
the  case  of  almost  all  trades  tending  to  become 
monopolies. 

(18)  It  may  be  urged  that  Local  Authorities 
should  retain  the  unquestionable  right  to  compete 
with  private  companies  in  order  to  keep  in  their 
hands  a  powerful  weapon  to  be  used  if  it  were 
ever  thought  desirable  to  buy  up  the  works  owned 
by  these  companies.  Though  this  would  be  a 
perfectly  legitimate  way  of  attempting  to  control 
the  price  to  be  paid,  it  would,  nevertheless,  be 
but  a  clumsy  and,  in  some  respects,  a  harmful 
expedient.  It  is  unwise  to  threaten  any  action 
unless  it  is  really  intended  to  take  that  action 
under  certain  conditions ;  and,  if  a  Local  Authority 
should  start  works  in  opposition  to  a  private 
company,   the   competition   would   be   as  objection- 

1  "  Relations  between  Cities  and  Street  Railways."     Report  of  Massa- 
chusetts Committee,  p.  111. 

2  "Municipal  Government  in  Continental    Europe,"    Albert    Shaw, 
p.  187. 


CHAP,  xm.]  CONCESSION   PERIOD  401 

able  as  that  between  two  private  companies ;  for 
there  would  be  in  both  cases  the  same  unnecessary- 
interference  with  the  streets,  and  the  same  waste 
of  capital.  There  would,  moreover,  be  a  danger 
of  corrupt  influences  being  brought  to  bear  on  the 
Local  Authority  to  mitigate  its  competition. 
Some  far  more  certain  and  rational  method  of 
regulating  the  price  to  be  paid  when  private 
works  are  purchased  by  public  bodies  than  that 
which  exists  at  present  ought  to  be  established ; 
and,  if  this  were  done,  the  retention  of  the  right 
to  compete  on  behalf  of  the  Local  Authority 
would  be  unnecessary.  In  short,  in  all  trades  for 
which  municipal  concessions  are  required,  it 
appears  that  an  absolute  monopoly  should  be 
granted  by  such  concessions  to  one  company  only 
to  trade  over  a  fairly  wide  area ;  and,  if  a  Com- 
mission were  appointed  to  deal  with  such  matters, 
it  should  be  instructed  to  act  on  this  general 
principle. 

(19)  Having  decided  on  the  general  method  of 
granting  concessions,  it  is  natural  next  to  enquire 
whether  any  rights  should  be  granted  in  perpetuity, 
or  whether  the  original  concession  should  contain 
provisions  giving  the  Local  Authorities  concerned 
the  right  to  buy  out  the  company  after  the 
expiry  of  a  given  period.  This  they  might  wish 
to  do,  either  with  the  view  of  undertaking  the 
work  themselves,  or  of  leasing  it  to  some  other  com- 
pany, or  of  re-leasing  it  to  the  same  company  on 
different  terms.  It  is  not  only  necessary  to  decide 
as  to  the  length  of  time  for  which  concessions  should 
be  granted,  but  also  as  to  how  the  property  should 
be  valued  for  purchase  at  the  end  of  the  concession 

2  c 


402  PRIVATE   TRADE  [chap.  xiii. 

period ;  and  these  two  questions  are  so  intimately 
connected  tliat  they  cannot  be  discussed  separately. 
Here,  again,  we  are  brought  face  to  face  with  the 
necessity  of  making  a  compromise  between  the  con- 
ditions best  suited  to  attract  capital  and  the  condi- 
tions best  suited  to  satisfy  the  demands  of  the 
consumers  and  of  the  public  generally. 

(20)    Until   recently,   all   concessions   granted   in 
England,    including    those    for    market    rights    and 
for    gas    and    water    companies,    were    granted    in 
perpetuity.      As    regards    the    more     recently    de- 
veloped   trades,    such    as     tramways    and     electric 
lighting,    conditions    are    now    always    included    in 
the    concessions   which    enable    the    Local   Author- 
ities   concerned   to   purchase  these   undertakings   at 
the    end    of    a    fixed    period.      It    can    hardly    be 
doubted   that    this    change    of   policy   was    due    to 
the    desire    felt    by    municipalities    to    work    these 
undertakings  themselves  should  they  prove  success- 
ful,   rather   than   to    any    mere    abstract   considera- 
tions.     IVIany    who    object    to    municipal    trading 
would   return    to    the    older    system    of    perpetual 
concessions   merely   with    the   view    of    putting    an 
obstacle  in  the  path  of  municipalities.     This  is  not 
a  wise  policy,  even  where  the  end  sought  is  right; 
for,   if   Local    Authorities   want   to    undertake    the 
management    of    any    undertakings,   they   will    not 
be  materially  hindered  in  consequence  of  the  con- 
cessions having   been   granted   in   perpetuity.      The 
only   true   safeguard    against    municipalities    under- 
taking  unsuitable   work   is   to   convince   the   public 
that    such    work    had    better    be    left    in    private 
hands. 

(21)  But,   putting    aside    all   such    questions    of 


CHAP.  XIII.]  CONCESSION   PERIOD  403 

policy,  perpetual  concessions  are  to  be  condemned 
on  many  grounds.  Even  those  who  are  generally 
opposed  to  municipal  trading  may  hold  that  it 
is  difficult  to  look  into  the  future,  and  that  the 
road  to  public  management  should  therefore  always 
be  kept  open.  But  a  far  stronger  argument  in 
favour  of  limited  concessions  is  that  it  is  impossible 
by  means  of  perpetual  concessions  either  to  safe- 
guard the  consumer  adequately  or  to  capture  the 
unearned  increment  in  the  most  suitable  manner. 
As  to  the  consumer,  a  great  deal  may  be  done 
under  perpetual  concessions  by  means  of  regula- 
tions, and  by  sliding  scales  of  ^97'^ces  dependent 
on  the  interest  paid  by  the  managing  companies ; 
but  the  results  are  ne\'er  very  satisfactory  for  long. 
And  as  to  capturing  the  unearned  increment  for 
the  benefit  of  the  ratepayer,  though  httle  has 
been  done  in  this  respect,  something  might  be 
done  by  means  of  sliding  scales  of  ')'e7its  payable 
by  companies  to  the  Local  Authorities.  If,  how- 
ever, a  municipality  is  by  the  terms  of  the  conces- 
sion given  the  right  to  buy  up  the  works  constructed 
by  the  prixate  proprietors  at  fixed  intervals,  oppor- 
tunities will  thus  be  afforded  for  making  fresh 
arrangements  as  to  prices  and  rents  with  the  same 
or  with  some  other  company ;  and  the  interests  of 
the  public  can  thus  be  secured  better  than  in  any 
other  way.  The  possibihty  of  capturing  the  un- 
earned increment  depends  mainly  on  the  fact  that 
investors  do  not  pay  sufficient  heed  to  the  distant 
future.  Little,  consequently,  is  gained  by  part- 
ing with  rights  over  streets  in  perpetuity  as  com- 
pared with  parting  with  such  rights  for  a  limited 
period,  whilst   much  may   thus   be   lost.     Lastly,  if 


I 


404  PRIVATE   TRADE  [chap.  xiii. 

a  mistake  of  any  kind  is  made  in  granting  a 
perpetual  concession,  a  mistake  which  is  very  prob- 
able when  Local  Authorities  are  dealing  with  the 
expert  promoters  of  new  industries,  it  may  never 
be  possible  to  rectify  that  error  without  unnecessary 
expenditure;  and  the  mere  fact  that  terminable 
concessions  can  be  granted  with  less  elaborate 
provisions  for  the  future  is  a  strong  point  in  their 
favour.  In  short,  if  capital  can  be  attracted  in 
any  other  way,  perpetual  concessions  enabling 
private  proprietors  to  manage  trades  tending  to 
become  monopolies  should  never  be  granted ;  and 
experience  proves  that  capital  will  be  forthcoming 
under  a  system  of  terminable  concessions. 

(22)  The  history  of  English  tramway  enter- 
prise is  very  instructive  as  regards  the  conditions 
necessary  to  insure  an  adequate  supply  of  capital. 
Tramways  can  be  constructed  by  private  com- 
panies in  England  either  under  powers  granted  by 
Private  Acts  of  Parliament,  or  under  Provisional 
Orders  granted  under  the  Act  of  1870.  Under 
this  latter  Act  the  Local  Authorities  have  a  power 
of  compulsory  purchase  at  the  end  of  twenty-one 
years  at  a  valuation  dependent  on  the  state  of  the 
line  and  on  the  estimated  cost  of  constructing, 
at  the  date  of  the  purchase^  a  tramway  similar 
to  the  line  in  question  when  new.  If  the  cost  of 
building,  etc.,  falls  during  the  twenty-one  years, 
then  the  valuation  at  the  end  of  this  period  will 
obviously  be  less  than  the  amount  actually  expended 
by  the  proprietors  in  constructing  the  line.  For 
some  little  time  after  the  passing  of  this  Act,  it 
did  not  appear  that  these  conditions  as  to  con- 
cessions   were    interfering    with    private     tramway 


i 


CHAP.  xiii.J  TRAMWAY   CONCESSIONS  405 

enterprise,    probably    because    the    investing    public 
did  not  understand  them,  and  because   the  original 
promoters,   who   did    understand    them,    "generally 
"cleared  out  as  quickly  as   they  could,  looking  for 
"their   profit   to  an  inflated  capital,  rather  than   to 
"a  steady  investment  yield." ^     Investors  soon,  how- 
ever, became  shy ;  and  then  trade  was  undoubtedly 
checked.     The  harmful  result  of  these  clauses  was, 
moreover,  especially  noticeable  at  this  time  because 
of  the  introduction  of  electricity  for  motive  power. 
Private     companies     owning     expiring     concessions 
could   not   afford   to   electrify    their    hues ;    for   the 
terms    of    the    concessions    gave    them    no    induce- 
ment to  invest   fresh  capital,  and  made  it  necessary 
for  them  to  pay  away  in  dividends  all  the  profits  they 
could   possibly    earn   with   horse   traffic   during   the 
remaining   years   of  their   industrial   life.^        Before 
1896    only    about    20    miles    of    electric    tramways 
had  been  constructed  in  England   and    Scotland ;   a 
figure    to    be    contrasted    with    the    10,000    miles 
laid   in   the    United    States    at    that    period,    where 
the    terms    of    concessions    are    even    too    liberal.^ 
"The    social    economic    and    industrial    loss   which 
"  Great   Britain  has  suffered  through  being  for   the 
"first  time  in  her  history  behind  other  countries  in 
"  adopting  a  new  invention  of  first-class  importance 
"  is   literally   incalculable."     It   may   be   possible   to 
point    to    an    individual    city    which    has    "gained 
"  ultimately    by    its    dilatoriness "    with    regard     to 
electrical  improvements ;  because  it  is  possible  that 
while  it  has    been  lying  fallow  and   doing  nothing, 

1  Economic  Jourtuil,  Vesey  Knox,  December  1901,  p.  504. 

2  M.T.E.,  Qs.  1212,  1462. 

^  Economic  Journal,  Vesey  Knox,  December  1901,  p.  506. 


4()()  PRIVATE   TRADE  [chap.  xiii. 

other  cities  may  have  been  trying  and  rejecting 
various  inventions.  Glasgow,  for  example,  may 
have  relied  "on  other  people's  experience"  with 
advantage  to  itself;  but  if  all  the  world  were  to 
follow  this  example,  no  progress  whatever  would 
be  made.^  Though  delay  may  sometimes  be 
advantageous,  it  is  quite  certain  that  any  regula- 
tions which  tend  to  check  the  investment  of 
capital  in  any  locality  will  in  the  long  run  have  a 
most  injurious  effect  on  that  locality. 

(23)  Experience,  therefore,  proves  that  limited 
concessions  in  England  have  worked  veiy  unsatis- 
factorily ;  ^  and  it  has  often  been  assumed  that  the 
harm  done  is  to  be  attributed  to  the  fact  that  the 
period  before  the  purchase  rights  came  into  opera- 
tion was  short,  and  that  it  was  not  due  to  the  con- 
ditions attached  to  those  purchase  rights  themselves. 
Twenty-one  year  concessions  were  granted  to  electric 
lighting  companies  under  the  Act  of  1882  ;  and, 
when  it  appeared  that  this  trade  was  stagnating,  the 
period  was  increased  to  forty-two  years  by  the  Act 
of  1888.^  This  I  believe  to  have  been  a  movement 
in  the  wrong  direction ;  the  reform  really  most 
needed  in  such  cases  being  an  alteration  in  the 
method  and  not  in  the  date  of  the  possible  purchase 
by  the  municipalities. 

(24)  It  appears  to  be  commonly  supposed  that 
a  city,  by  retaining  the  right  to  purchase  the 
property  of  private  companies  on  "  good "  terms, 
can  thus  prevent  the  shareholders  in  these  companies 
from  reaping  excessive  or  illegimate  benefits  from 
the   concessions  granted  to  them.     This  conception 

J  M.T.R.,  Q.  2811.     Mr  S.  Chisholm. 
2  M.T.R.,  Q.  829.  ''  Ibid.,  Qs.  54,  1646. 


cHAP.xm]  VALUATION   OF   WORKS  407 

is,    however,    almost     entirely    erroneous.      It    has 
already  been  pointed  out  in  a  previous  chapter  that 
when   municipalities    retain   the  right    to   buy    out 
private  proprietors  on  terms  that  appear  to  them  to 
be  "  hard,"  the  inevitable  effect  is  to  force  these  pro- 
prietors, whilst  they  have  the  power  to  do  so,  to  im- 
pose a  tax  on  the  goods  sold  by  them,  not  for  their 
own  benefit,  but  for  the  benefit  of  either  the  public 
or  the  consumer  of  the  future.     There  is  no  justifica- 
tion for  a  tax  being  thus  thrown  on  the  consumer 
whilst    the    works    are    in    the     hands    of    private 
proprietors  ;  and  the   price    to   be  paid   for  gas,   for 
example,  should  in  these  circumstances  be  the  same 
as   the  price  which   the  consumer  would   have   had 
to   pay   had   the   municipality  itself  taken   the   gas 
supply  in  hand.     It  follows  from  this  consideration 
that,   if  no  undue  burden  is  to  be  thrown   on   the 
consumer   during   the   concession   period,    the   price 
to   be   given  to  the  private  proprietors  at  the  end 
of  that  period   must   not   be  less  than  the  amount 
which  the  municipality  itself  would  have   expended 
in  erecting  the  works  at  the  date  at  which  the  con- 
cession was  granted,  a  due  allowance  being,  however, 
made   for   depreciation.      Harder  terms    than   these 
cannot  be  justified   on   economic  grounds  ;  and   by 
no  terms,  however  hard,   can  the  burden  in  reality 
be    thrown   by   the   public    on  to  the   shoulders   of 
the  shareholders. 

(25)  If,  as  above  suggested,  municipalities  retain 
the  right  to  purchase  the  works  on  the  basis  of 
the  original  cost,  they  will  at  any  time  be  able  to 
capture  the  increment  of  value  by  exercising  this 
right,  and  by  either  managing  the  works  themselves, 
or    releasing    them    to   private    proprietors.      It   is, 


408  PRIVATE   TRADE  [chap.  xiii. 

however,  equally  true  tli.at  in  certain  circumstances 
they  may  capture  the  decrement  of  value  by  such 
purchases.  If,  for  example,  a  company  erected 
works  which  were  either  unnecessarily  costly  when 
erected,  or  which  became  obsolete  through  circum- 
stances which  could  or  could  not  have  been  fore- 
seen, a  municipality  wishing  to  purchase  these  works 
would  have  to  pay  under  this  system  of  valuation 
for  blunders  or  for  changes  in  conditions  for  which 
it  was  in  no  way  responsible.  Full  responsibility 
and  full  penalties  for  all  mistakes  should,  as  far  as 
practicable,  be  thrown  on  companies  undertaking 
the  management  of  monopolies  ;  and  this  considera- 
tion, no  doubt,  creates  a  difficulty  in  selecting  a 
suitable  system  of  valuation.  This  subject  will  be 
further  discussed  in  a  note  at  the  end  of  this 
chapter.  Here  it  is  sufficient  to  remark  that  the 
method  of  valuation  adopted  should  be  such  as 
would  produce  no  deterrent  influence  on  the  owners 
of  capital,  and  that  the  public  would  in  the  long  run 
not  only  gain  nothing  but  would  lose  m.uch  by 
attempting  to  squeeze  the  investor  by  retaining 
purchase  rights  on  very  onerous  terms. 

(26)  Thus  the  granting  of  concessions  for  short 
periods  with  hard  terms  of  purchase  not  only  cripples 
trade,  but  such  conditions  cannot  be  justified  by 
considerations  having  reference  either  to  the  public 
or  to  the  consumer.  This  system  should  therefore  be 
abandoned,  and  either  the  concessions  should  be 
lengthened,  or  the  method  of  valuation  should  be 
altered.  If  the  concessions  were  never  granted  for 
less  than  forty  or  fifty  years,  plenty  of  time  would 
be  given  to  the  companies  concerned  to  prepare  for 
the  day  when  they  might  be  bought  out  at  a  loss ; 


CHAP  XIII.]  RIGHT   OF  PURCHASE  409 

and  neither  would  the  price  of  the  goods  suppHed 
have  to  be  materially  raised  in  consequence  of 
this  possibihty,  nor  would  promoters  be  seriously 
hindered  by  the  risks  thus  involved  in  their  efforts 
to  raise  the  necessary  capital.  Thus,  in  these 
respects,  the  lengthening  of  concessions  would  be 
very  advantageous.  In  other  respects  it  would, 
however,  be  harmful ;  for  all  the  objections  previously 
urged  against  perpetual  concessions  hold  good  as 
arguments  against  long  term  concessions,  though, 
of  course,  with  diminished  force.  The  alternative 
remedy  of  altering  the  method  of  valuation  should 
therefore  be  adopted  in  preference.  If  the  right  to 
buy  the  property  of  private  companies  were  retained 
on  such  terms  that  no  loss  need  reasonably  be 
expected  to  fall  on  the  shareholders,  then  there 
would  be  nothing  to  frighten  away  capital.  Con- 
cessions for  short  periods,  be  they  never  so  short, 
will  not  cripple  trade  if  granted  on  reasonable 
terms. 

(27)  But  if  concessions  are  to  be  for  short 
periods,  how  short  should  these  periods  be?  The 
definite  naming  of  a  date  at  which  a  change  of 
ownership  may  take  place  is  in  itself  sufficient  to 
make  that  change  more  probable  than  if  no  special 
date  were  named.  The  public  get  the  idea  that 
something  ought  to  be  done  at  the  termination  of  a 
concession ;  and  the  advocates  of  INIunicipal  Trade 
are  likely  to  find  their  demands  for  public  manage- 
ment granted  at  such  times  without  adequate  con- 
sideration. There  would  in  reality  be  less  risk  of 
hasty  action  if  municipalities  retained  the  right  to 
purchase  private  works  at  all  times ;  because  the 
establishment    of    a    municipal    industry   would    in 


410  PRIVATE   TRADE  [chap.  xiii. 

these  circumstances  always  appear  to  be  an  in- 
novation, and  one  not  specially  called  for  at  the 
moment.  Another  objection  to  granting  concessions 
for  a  definite  number  of  years  is  that  the  conditions 
imposed  are  generally  such  as  make  it  difficult  to 
carry  on  the  business  when  the  date  of  the  possible 
purchase  is  approaching;  and  American  experience 
has  certainly  been  that  "wherever  there  was  a 
"term  franchise  about  to  expire,  there  was  strife"^ 
For  these  reasons  it  would  appear  best  to  grant 
concessions  perpetual  in  form,  but  containing  clauses 
which  would  enable  the  municipalities  concerned  to 
purchase  the  works  whenever  they  liked ;  a  view 
which  is  now  shared  by  several  English  and 
American  authorities.  Under  such  rules  it  is  true 
that  municipalities  would  have  the  power  of  vetoing 
the  actual  commencement  of  operations  by  any 
company  by  using  its  right  of  purchase  directly 
a  concession  was  granted.  But  in  these  circum- 
stances it  should  be  enacted  that  Local  Authorities 
should  both  refund  all  legitimate  formation  expenses, 
and  give  a  guarantee  that  they  would  proceed  forth- 
with with  the  work  themselves.  Such  a  power  of 
veto  would  not,  therefore,  be  recklessly  used.^ 

(28)  It  is  possible  that,  under  certain  exceptional 
conditions,  this  right  of  purchase  should  be  denied 
to  municipalities.  To  take  an  extreme  example, 
where  a  tramway  runs  across  a  small  part  of  a 
district  under  one  Local  Authority,  thus  connect- 
ing two  separated  parts  of  a  district  under  another 
Local  Authority,  it  would  be  absurd  to  place  in 
the   hands  of  this  first  Local  Authority  the   power 

^  "Relations     between     Cities    and     Street     Railway     Companies," 
Massacliusetts,  1898,  p.  111. 
2  M.T.R.,  Qs.  1218,  1688. 


CHAP.  XIII.]  RIGHT   OF  PURCHASE  411 

to  damage  the  whole  tramway  system  by  purchas- 
ing this  small  connecting  link.  JNIoreover,  even 
when  all  the  public  bodies  concerned  are  anxious  to 
buy  out  a  private  company  trading  in  several  areas, 
it  would  be  advantageous  to  insure  that  some 
permanent  scheme  of  joint  action  should  be 
formulated  before  the  purchase  was  concluded. 
For  both  these  reasons,  and  following  closely  the 
example  set  by  existing  Light  Railway  Orders,  it 
should  be  enacted  that,  when  the  operations  of  a 
company  extend  into  more  than  one  local  area, 
and  when  any  one  of  the  Local  Authorities  con- 
cerned objects  to  the  sale  of  any  part  of  the  works 
to  any  other  Local  Authority,  such  sale  should  not 
be  permitted  to  take  place  except  with  the  consent 
of  the  Commission.  Possibly  other  exceptional 
contingencies  would  have  to  be  guarded  against ; 
but  these  would  be  only  exceptions,  and  the  right 
of  purchase  at  all  times  should  remain  the  rule. 

(29)  It  is  undoubtedly  true  that  concessions 
under  which  no  rights  of  purchase  are  retained 
have  the  advantage  that  they  produce  the  least 
possible  teadency  to  corruption.  It  is  towards 
the  end  of  a  concession  period  that  illegitimate 
efforts  to  secure  the  renewal  of  the  concession 
on  favourable  terms  are  most  likely  to  be  made ; 
but  if  the  concession  is  irrevocable,  there  will  be 
no  such  recurrent  periods  of  temptation.  This 
being  the  case,  it  may  be  urged  that  to  allow 
municipalities  to  have  the  right  of  purchase  at 
all  times  would  be  to  keep  a  running  sore  per- 
petvially  open ;  and  there  is,  no  doubt,  much  truth 
in  this  contention.  In  the  United  States,  the 
tramway  companies  "  complain  that   they  are   con- 


412  PRIVATE   TRADE  [chap.  xiir. 

"  tinually  assailed  by  members  of  the  City  Council 
"with  measures  partaking  of  the  nature  of  blackmail ; 
"  and,  on  the  other  hand,"  the  Local  Authorities 
hold  that  the  companies  "  are  continually  engaged  in 
attempts  to  obtain  special  privileges  by  corrupting 
members  of  the  City  Council."^  But  if  all  ques- 
tions relating  to  the  granting  and  interpretation  of 
concessions  were  dealt  with  by  an  independent 
judicial  Commission,  the  advantages  to  be  derived 
from  bribing  elected  bodies,  and  the  possibilities  of 
blackmailing  companies  would  be  very  greatly 
diminished.  The  increased  security  against  cor- 
ruption is  one  of  the  very  strongest  arguments 
in  favour  of  the  formation  of  such  a  Commission  as 
is  here  proposed. 

(30)  The  main  object  of  retaining  the  right  of 
purchase  at  all  times  would  be  to  safeguard  the 
interests  of  consumers  as  regards  the  price  and  the 
quality  of  the  goods  to  be  supplied,  and  to  capture 
the  increment  of  value.  To  attain  these  results 
it  would,  I  believe,  seldom  be  necessary  actually  to 
apply  to  the  Commission  to  fix  the  price  at  which 
the  company's  property  could  be  bought;  though 
in  extreme  cases,  this  might  have  to  be  done  before 
it  would  be  possible  either  to  make  a  new  arrange- 
ment with  the  old  company  or  to  lease  out  the 
works  to  new  managers.  The  indirect  effect  of 
municipalities  having  the  power  of  purchase  in  the 
background  would  be  to  enable  them  in  nearly  all 
cases  to  get  satisfactory  terms  by  negotiating  with 
the  proprietors.  Every  effort  should  certainly  be 
made   to   avoid    litigation   before    the    Commission ; 

^  "  Relations  between  Cities  and  Street  Railways,"  Massachusetts,  1898 
p.  118. 


CHAP.  XIII.]  TERMS   OF   CONCESSIONS  413 

and,  with  this  object  in  view,  concessions  should 
contain  clauses  intended  to  insure  that  justice  should 
be  done  for  as  long  a  period  as  possible  to  all  the 
parties  concerned  without  any  change  being  made 
in  the  concession  itself.  Arrangements  for  this 
purpose,  such  as  shding  scales  of  prices  and  rents 
dependent  on  profits,  are  necessary  when  concessions 
are  granted  in  perpetuity  ;  though  it  is  true  they 
can  only  work  well  for  short  periods.  Profits  must 
vary  widely  during  long  periods  on  account  of  causes 
beyond  the  control  of  the  management ;  for  the 
cost  of  production  must  change  with  every  change 
in  the  price  of  labour  and  of  raw  materials.  Such 
arrangements  can  be  little  better  than  temporary 
makeshifts ;  and  they  do  not  obviate  the  necessity 
for  providing  occasions  for  free  bargainings  between 
the  private  proprietors  and  the  public.  All  that 
can  be  done  by  such  expedients  is  to  make  these 
bargainings  less  frequent ;  but  as  this  result  would 
be  advantageous,  it  would  be  desirable  to  include 
arrangements  foi>  sliding  scales  of  prices  or  variable 
rents  even  in  terminable  concessions. 

(31)  The  object  of  including  these  arrangements 
in  terminable  concessions  would  be  to  facilitate  the 
safeguarding  of  the  interests  of  the  public.  The 
effect  of  the  two  suggested  arrangements  would, 
however,  be  very  different ;  for,  with  sliding  scales 
of  prices,  the  consumer  only  would  be  affected ; 
whilst  variable  rents  would  be  designed  purely  for 
the  benefit  of  the  ratepayer.  \Miich  should  be 
adopted  ought  to  depend  on  the  particular  circum- 
stances of  each  case.  Sliding  scales  of  prices  are 
said  to   have  worked  well ;  ^    but  they  are  open  to 

1  "  The  State  in  Relation  to  Trade,"  Lord  Farrer,  p.  90. 


414  PRIVATE   TRADE  [chap.  xiii. 

the  objection  that  they  are  easily  evaded  to  a  certain 
extent ;  ^  and  that  it  is  sometimes  impossible  to  make 
reductions  in  price  except  by  rather  large  steps. 
For  example,  penny  tramway  fares  practically  could 
not  be  reduced  by  less  than  50  per  cent.  Rentals 
varying  with  profits,  which  are  not  open  to  this 
objection,  have  already  been  advocated  as  a  means 
of  capturing  the  increment  of  value.  They  are 
said  to  be  objectionable  because  they  afford  an 
opportunity  to  municipalities  to  squeeze  private 
proprietors  in  an  undesirable  manner ;  but  there 
would  be  little  force  in  this  argument  if  the 
decision  as  to  the  terms  of  concessions  were  placed 
in  the  hands  of  an  mdependent  commission.  If 
the  rents  levied  were  large,  they  would  be 
equivalent  to  the  imposition  of  a  tax  on  the 
commodity  sold,  which  might  be  objectionable. 
But  in  many  cases  such  rents  might  be  levied 
in  moderation  on  the  holders  of  municipal  con- 
cessions without  harmful  effects,  provided  that 
certain  conditions  were  adhered  to.  The  terms 
of  the  concessions  must  not  be  so  hard  as  to 
prevent  promoters  obtaining  sufficient  capital ;  and 
the  necessary  capital  will  be  attracted  in  the  method 
most  advantageous  to  the  public  if  the  investor  is 
made  to  feel  as  secure  as  possible  of  obtaining  a 
moderate  return  on  his  investment.  No  provision 
should  therefore  be  made  for  charging  a  rent  whilst 
the  receipts  were  insufficient  to  pay  more  than  4 
or  5  per  cent,  on  the  sum  legitimately  invested  in 
the  enterprise ;  whereas  a  considerable  proportional 
part  of  any  surplus  earnings  over  and  above  this 
minimum  net  profit  might  with  advantage  be  made 

1  M.T.E.,  Q,  2072. 


CHAP.  XIII.]        ARBITRATION   AS   TO   PRICES  415 

to  pass  into  the  public  purse.  Certain  practical 
considerations  are  said  to  make  gross  receipts  better 
than  net  i^rojits  as  a  basis  for  calculating  variable 
rentals ;  but  certainly  the  net  ijrojits  are  preferable 
for  the  foregoing  reason.^  The  worst  system  that 
could  be  adopted  would  be  the  payment  of  a  lump 
sum  down  by  the  promoters  in  lieu  of  a  rent,  or, 
in  other  words,  the  sale  of  concessions.  These  are 
the  main  considerations  which  should  be  held  in 
view  in  deciding  which  of  these  automatic  methods 
of  adjustment  should  be  included  in  concessions.^ 
(32)  It  will  be  remembered  that  in  JNIassachusetts 
the  Commission  is  given  the  power  of  arbitrarily 
ordering  the  reduction  of  prices  in  the  controlled 
trades  at  any  time.  It  would  be  necessary  to  give 
some  such  power  to  the  Commission  in  those 
exceptional  cases  w^here  they  are  permitted  to 
prohibit  the  sale  of  works  to  municipalities ;  but, 
as  regards  all  other  cases,  it  appears  to  me  that 
this  is  somewhat  too  drastic  a  method  for  general 
adoption.  Prices  can  best  be  settled  by  bargaining 
between  the  vendor  and  the  customer  or  his  repre- 
sentative ;  and  that  is  the  method  here  suggested. 
There  would,  however,  be  considerable  advantages 
if  the  parties  in  the  dispute  could  obtain  from  the 
technical  Commission  an  expression  of  opinion  as 
to  the  price  to  be  fairly  charged,  the  quality 
to  be  supplied,  or  any  other  disputed  point  with 
regard  to  the  concession ;  for  such  an  opinion  would 
very  often  be  accepted  and  useless  controversy 
thereby  avoided.     It   might   with   advantage,  there- 

1  M.T.R.,  Q.  1513. 

2  "  Essays    on    Taxation,"    Seligmau,    1895,    p.    198  ;    "  Economics," 
Marshall,  book  v.,  chap,  xiii,,  sect.  6. 


416  PRIVATP:   trade  [chap.  XIII. 

fore,  be  enacted  that  the  Commission  could  always 
be  called  in  on  the  demand  of  either  party  to  give 
a  decision  on  such  disputed  points ;  and  that  for, 
say,  the  next  two  years,  the  valuation  should 
be  decreased  by  5  per  cent,  should  the  private 
proprietors  refuse  to  accept  the  decision  and  in- 
creased by  5  per  cent,  should  the  Local  Authorities 
persist  in  purchasing  the  works. 

(33)  Many  companies  o^vning  perpetual  concessions 
such  as  those  managing  English  water-works  and 
gas-works,  are  not  permitted  to  pay  more  than  a 
certain  di\'idend,  and  are  bound  to  absorb  any  surplus 
profits  by  reductions  in  the  prices  of  the  articles 
supplied.  The  objections  to  this  plan  depend  on  the 
fact  that  when  this  statutory  limitation  is  reached, 
the  private  proprietors  no  longer  feel  any  incentive  to 
economy.  Take  the  case  of  a  gas-work  company,  for 
example,  paying  its  maximum  dividend.  If  a  change 
in  the  conditions  of  trade  takes  place,  and  if,  in 
consequence,  prices  are  reduced,  the  company  may 
subsequently  find  itself  forced  to  raise  its  prices  again 
to  the  old  level  in  order  to  be  able  to  continue  to 
pay  the  maximum  dividend.  The  displeasure  of  the 
Local  Authority  would  probably  thus  be  incurred, 
and  such  displeasure  is  always  to  be  avoided  if 
possible.  As  fluctuations  in  the  conditions  of  trade 
are  of  constant  occurrence,  it  would  generally  be  far 
more  advantageous  for  a  company  in  these  circum- 
stances, instead  of  reducing  prices  in  good  years,  to 
diminish  its  receipts  by  such  expedients  as  the  erection 
of  unnecessarily  costly  buildings  ;  a  policy  which  has, 
I  believe,  actually  been  pursued.  With  ordinary 
sliding  scales  of  prices  the  public  do  not  as  a  rule  get 
a  sufficient  advantage  from  causes  producing  a  rise  in 


CHAP,  xiii]  OVER-CAPITALISATION  417 

dividends  from,  say,  5  per  cent,  to  10  per  cent.,  the 
latter  being  assumed  to  be  the  statutory  hmit ; 
whereas  the  absolute  prohibition  of  an  increase  of 
dividends  above  that  limit  is  an  arrangement  which 
aims  at  grasping  too  much.  Some  monetary  in- 
ducement to  conduct  business  economically  should 
always  be  held  out  to  private  proprietors,  and  a  rigid 
limitation  of  profits  should  never  be  enacted.  It  is, 
however,  hardly  necessary  to  lay  down  any  such 
prohibition  with  concessions  terminable  at  will ;  for 
the  possibility  of  fresh  arrangements  being  made  if 
ever  profits  should  appear  excessive  would  make 
any  statutory  limitation  of  dividends  almost  a  dead 
letter. 

(34)  There  are  other  matters  connected  with 
concessions  which  require  consideration,  but  which 
will  here  be  but  briefly  touched  on.  In  the  first 
place,  there  are  obvious  disadvantages  in  all  cases  in 
a  wide  divergence  between  the  actual  investment  of 
cash  and  the  nominal  capitalisation.  We  are  now, 
however,  only  concerned  with  the  special  disadvan- 
tages felt  in  the  case  of  companies  owning  municipal 
concessions.  Whenever  a  sliding  scale  of  prices  is 
inserted  in  a  concession,  it  is  necessary  to  see  that 
this  safeguard  is  not  evaded  by  watering  the  capital 
of  the  company.  For  this  reason  alone,  the  existing 
regulations  as  to  the  sale  of  new  issues  by  auction  by 
gas  companies  should  be  included  in  all  concessions 
terminable  at  will ;  and  all  the  other  precautions  to 
prevent  over-capitalisation,  such  as  those  having 
reference  to  the  making  up  and  publication  of 
accounts,  should  be  included,  even  it  they  sliould 
not  be  strengthened.  ^^.n  ^Vct  was  passed  in 
Massachusetts  to  the  effect  that  "  No  gas  company 

2    D 


418  PRIVATE   TRADE  '     [chap.  xiii. 

"  shall  transfer  its  franchises,  lease  its  works,  or 
"contract  with  any  person,  association,  or  corpora- 
"tion  to  carry  on  its  works  without  the  authority 
"of  the  Legislature";  and  the  existing  powers 
possessed  by  our  Government  departments  for  pre- 
venting such  proceedings  should  be  transferred  to 
the  Commission,  and  perhaps  strengthened/  A¥hen 
works  are  bought  by  Local  Authorities,  over-capitali- 
sation will,  moreover,  be  objectionable  because  it  will 
tend  either  to  make  the  price  paid  excessive,  or  to 
cause  suffering  to  investors  labouring  under  false  ideas 
as  to  the  value  of  their  property.  There  are  cases 
in  the  United  States  where  tramway  "  companies 
"  stand  charged  with  capital  stock,  bonds,  and  other 
"  indebtedness  nearly  or  quite  ten  times  the  actual 
"  cash  cost  of  construction  and  equipment."  ^  English 
legislation  has  been  more  effective  in  checking 
abuses  of  over-capitalisation ;  but  the  recommenda- 
tions of  the  New  York  Committee  on  tramways 
that  the  consent  of  a  commission  should  be  obtained 
to  aU  capital  issues  might  be  adopted  with  advantage 
in  the  case  of  aU  companies  holding  municipal  con- 
cessions terminable  at  will.^ 

(35)  It  is  obvious  that  all  questions  of  capitahsa- 
tion  and  all  disputes  abovit  prices  would  be  more 
easily  dealt  with  if  both  the  works  and  the  books 
of  the  company  were  open  to  inspection  by  the 
municipality  and  by  a  commission ;  a  provision 
frequently  included  in  German  concessions.     With 

1  Quart.  Journal  of  Economics,  July  1898.  "Boston  Gas,"  J.  H.  Gray, 
p.  437. 

^  "  Report  of  the  Committee  on  the  Municipal  Ownership  of  Railways, 
New  York  1896,  vol.  i.  p.  6. 

'  Ibid.,  p.  8.     See  also   Qxiart.  Journal  of  Economics,  November  1900, 
Ripley  on  "  Capitalisation." 


CHAP.  XIII.]        INSPECTION    OF   ACCOUNTS  419 

competitive  trades  there  may  be  some  reason  in  a 
demand  for  secrecy ;  but,  with  monopolies  no  such 
excuse  for  holding  back  information  can  hold  good. 
When  granting  a  concession  to  a  private  company,  1 
see  no  objection  and  many  advantages  in  the  pubhc 
retaining  every  possible  right  of  inspection  and 
examination  of  works  and  documents ;  and  severe 
penalties  should  be  included  for  wilful  falsification  of 
accounts.  In  electric  light  orders  there  is  a  special 
clause  requiring  an  audit  by  the  Board  of  Trade. ^  It 
is,  however,  worthy  of  consideration  whether  it  would 
not  be  better  to  permit  municipalities,  or  the  Com- 
mission if  several  municipalities  were  concerned  in 
one  concession,  to  appoint  an  auditor,  whose  audit 
the  shareholders  might  accept  if  they  liked. 

(36)  To  return  for  a  moment  to  the  subject  dis- 
cussed in  the  last  chapter,  namely  legislation  affecting 
^Municipal  Trade,  we  find  that  the  "  gas  and  electric 
"  light  commissioners  of  iVIassachusetts  have  ample 
"  powers  to  prescribe  the  way  in  which  all  accounts 
"  of  municipal  gas  and  electric  plants  shall  be  kept. 
"In  addition  to  the  annual  sworn  reports  of  these 
"  accounts,  which  must,  according  to  law,  be  made  to 
"  the  commissioners,  they  have  authority  to  demand 
"  additional  reports  in  any  detail  whenever  they  so 
"  desire.  The  commissioners  have  exercised  their 
"  powers  through  an  elaborate  set  of  rules  and  forms 
"regulating  all  the  accounts  of  municipal  gas  and 
"  electric  plants.  The  annual  reports  of  the  com- 
"  missioners  contain  the  substance  of  the  reports 
"from  all  of  the  cities  and  towns  owning  gas  and 
"electric  systems  [in  JNIassachusetts],  and  constitute 
"the  most   important   and    accurate    body   of    data 

1  M.T.R.,  Q.  869. 


i 


420  PRIVATE   TRADE  [cHAr.  xm. 

"  relative  to  such  municipal  plants  that  has  ever  been 
"  compiled  in  the  United  States."  ^  It  is  most  im- 
portant that  municipal  accounts  should  be  comparable 
one  with  another,  and  also,  as  far  as  practicable,  with 
the  accounts  of  private  companies  undertaking  the 
same  trade ;  and,  if  this  desirable  result  is  to  be 
arrived  at,  a  certain  uniformity  of  method  must  be 
insisted  on.  The  Commission  here  suggested,  though 
estabhshed  primarily  with  the  view  of  dealing  with 
questions  affecting  private  trade,  should  also  be  en- 
trusted with  all  questions  affecting  municipal  trading 
statistics  ;  and,  to  enable  them  to  perform  this  duty 
satisfactorily,  they  should  have  the  right  to  inspect 
the  works  and  books  of  all  municipal  trades,  as  well 
as  of  all  private  trades  managed  under  municipal 
concessions. 

(37)  Another  question  worthy  of  consideration 
is  the  distribution  of  the  work  to  be  done  in  the 
streets  in  connection  with  water,  gas,  electricity, 
tramways,  etc.,  between  Local  Authorities  and 
private  managers.  Even  in  cases  where  private 
proprietors  own  all  the  plant  in  the  streets,  munici- 
palities should,  nevertheless,  have  the  right  to  imder- 
take  certain  portions  of  the  work  in  the  streets  at 
the  expense  of  the  company  (as  is  the  case  at  present 
sometimes  with  English  tramways) ;  the  Commission 
being  called  on  to  decide  disputed  questions.-  As 
to  tramways,  there  is,  however,  much  to  be  said  in 
favour  of  a  system  "  not  unknown  in  Great  Britain 
"and  elsewhere,  but  to  which  the  experience  of 
"Germany  is  more  especiaUy  tending — a  system 
"under    which    the    municipality    both    owns    and 

1  T/w  Journal  of   Political  Economy,    University   of    Chicago   Press, 
Alton  D.  Adams,  March  1902,  p.  222. 
•-'  M.T.R.,  Qs.  896,  1348. 


CHAP,  xiii]      OWNERSHIP   OF  TRAM   LINES  421 

"  controls  the  whole  surface  of  its  streets,  whether 
"paved  with  other  material  or  with  iron,  and  leases 
"  to  a  private  company  the  right  to  run  vehicles  over 
"  prescribed  routes  on  tracks  therein  specially  pro- 
"  vided."  In  considering  the  application  of  such  a 
system  to  other  trades  besides  tramways  it  must  be 
remembered  that  it  would  be  wise  always  to  lea\'e 
the  construction  of  such  parts  of  the  works  as  are 
of  a  high  technical  nature  to  the  proprietors  who 
will  be  responsible  for  the  working  of  the  system. 
The  same  remarks  apply  to  all  work  of  an  experi- 
mental character ;  and,  for  this  reason,  new  systems 
should  be  entirely  constructed  by  the  companies 
concerned.  JNIoreover,  difficulties  might  arise  as  to 
the  responsibility  for  accidents  under  any  divided 
system.  But  if  these  limitations  are  carefully  held  in 
view,  it  appears  to  me  that  the  general  policy  should 
be  "to  have  ever}i:hing  pertaining  to  the  street 
"  and  pavement  pass  into  the  ownership  of  the  muni- 
"  cipality  at  some  not  remote  future  time,  leaving  the 
"  municipality  free  "  to  enter  in  fresh  contracts  with 
private  proprietors  from  time  to  time ;  and  this  not 
only  with  regard  to  tramways,  to  which  these  words 
were  intended  to  apply,  but  as  far  as  may  be  to 
other  street  disturbing  monopolies  as  well.^ 

(38)  To  summarise  the  foregoing  conclusions,  we 
see  that  the  present  system  of  granting  concessions 
is  not  satisfactory ;  that  a  reformed  system  should 
be  introduced  under  which  all  questions  concerning 
future  concessions  should  be  placed  in  the  hands 
of  a  judicial  and  technical  commission ;  that  this 
Commission    should    grant   absolute    monopolies    to 

1  "  Relatiou  between  Cities  and  Street  Railways,"  Massachusetts  1898, 
pp.  29  and  30. 


422  PRIVATE   TRADE  [chap.  xiii. 

private  proprietors  under  concessions  tenninable  as 
a  rule  at  will  by  the  municipalities  concerned,  the 
existing  rules  as  to  valuation  being  materially  modi- 
fied ;  and  that  such  concessions  should  include,  as 
far  as  practicable,  sliding  scales  of  prices,  or  variable 
rents  (one  or  both),  and  also  provisions  giving  to  the 
Commission  and  to  tlie  Local  ^Vuthorities  the  fullest 
powers  of  inspection  of  works  and  documents. 
Since  no  concessions,  however  skilfully  worded,  can 
continue  to  constitute  for  a  long  period  a  suitable 
bargain  between  the  public  and  the  private  pro- 
prietors, it  should  be  so  arranged  that  the  Com- 
mission could  be  called  in  at  any  time  to  facilitate 
negotiations  for  the  granting  of  a  new  concession 
acceptable  to  all  parties. 

(39)  When  we  pass  on  to  consider  how  far  it 
would  be  expedient  to  apply  such  a  system  as  is 
here  described  to  existing  companies  which  own 
perpetual  concessions,  we  enter  on  more  difficult 
ground.  It  w^ould  generally  be  admitted  that  if 
there  is  reason  to  believe  that  it  would  be  advan- 
tageous to  municipalise  any  trade,  the  State  has 
the  riglit  to  buy  out  the  private  proprietors  at  an 
equitable  valuation.  If  this  be  admitted,  it  certainly 
follows  that  the  State  has  an  equal  i-ight  to  cancel  a 
perpetual  concession  and  to  impose  any  new  condi- 
tions, provided  that  equitable  compensation  be  given 
to  the  private  proprietors.  This  compensation 
should  be  equal  to  the  difference  between  the  values 
of  the  property  before  and  after  this  cancellation  of 
the  concession,  both  the  values  being  estimated 
on  the  same  system  of  valuation  as  is  held  to  be 
equitable  in  the  case  of  purchases  of  going  concerns 
for  the   purpose    of    establishing   municipal    trades. 


CHAP,  xiii]  EXISTING   CONCESSIONS  423 

And  here  we  have  to  consider  which  is  best ;  to 
niunicipahse  an  estabHshed  trade,  or  to  grant  a 
terminable  concession  to  the  company  managing  it 
in  the  manner  above  suggested. 

(40)  It  may  be  urged  that  a  municipality  would 
never  pay  money  down  in  order  merely  to  acquire 
an  increased  power  of  control  over  a  trade ;  and, 
that  when  perpetual  concessions  have  once  been 
granted,  the  only  practical  choice  is  that  between 
the  existing  condition  of  things  and  municipal 
management.  To  consider  tliis  point,  let  us  take 
the  case  of  gas-works  in  the  hands  of  a  private 
company,  and  let  us  in  the  first  place  assume  that 
the  trade  is  thoroughly  well  managed  and  that  the 
prices  charged  are  moderate.  In  these  circumstances 
no  immediate  public  benefit  will  follow  either  the 
municipalisation  of  the  gas-works  or  the  granting  of 
a  new  concession  terminable  at  will  to  the  private 
proprietors ;  and  the  municipality  would  be  tempted 
to  let  matters  alone.  But  it  should  be  remembered 
that  the  compensation  for  the  substitution  of  a 
terminable  concession  with  a  fair  system  of  valuation 
for  a  perpetual  concession  would  not  be  large ;  and 
it  would  probably  be  wise  to  pay  a  moderate  sum, 
not  for  any  immediate  benefit,  but  as  a  safeguard 
as  regards  the  future.  Next  take  a  case  where  the 
gas-works  were  well  managed,  but  where  the  prices 
charged  were  high.  In  these  circumstances,  if  the 
works  were  left  in  private  hands,  and  if  new  condi- 
tions were  imposed  necessitating  a  reduction  in  prices, 
a  considerable  sum  would  have  to  be  awarded  to 
the  proprietors  as  compensation  for  any  losses  thus 
imposed  upon  them.  But,  if  in  the  same  circum- 
stances  the   works   were   municipalised,   and   if  the 


424  PRIVATE   TRADE  [chap.  xiii. 

prices  were  then  reduced  in  a  similar  manner,  tlie 
loss  falling  on  the  town  would  amount  to  about  the 
same  sum  as  the  compensation  above  mentioned, 
granted,  again,  that  there  was  no  change  in  the 
efficiency  of  the  management.  Lastly,  if  the  high 
prices  charged  by  the  private  proprietors  were  due  to 
bad  management,  and  if  in  consequence  the  profits 
made  were  not  large,  then  the  management  would 
be  somewhat  more  likely  to  be  set  right  by  a  com- 
pulsory transference  of  the  works  to  another  company 
rather  than  by  municipal  management ;  granted,  that 
is,  that  the  views  here  expressed  as  to  the  relative 
merits  of  public  and  private  management  are  correct. 
In  short,  if  in  truth  such  a  system  of  controlling 
private  enterprise  as  is  here  suggested  is,  on  the  whole, 
more  beneficial  than  the  system  of  ^lunicipal  Trade, 
then  that  system  could  and  should  always  be  adopted 
in  preference  to  Municipal  Trade. 

(41)  The  proposal  to  enforce  new  conditions  on 
the  holders  of  perpetual  concessions  would  at  first  be 
opposed  on  account  of  its  novelty  and  on  account 
of  difficulties  connected  with  the  necessary  valuations. 
But,  if  these  new  regulations  were  adopted  in  all  new 
concessions  and  at  the  termination  of  all  expiring 
tramway  and  electric  lighting  concessions,  experience 
would  soon  tell  whether  they  were  or  were  not  on 
the  whole  beneficial ;  and  this  proposal  would  quickly 
begin  to  wear  a  very  different  aspect.  If  terminable 
concessions  proved  to  be  a  success,  there  would  then 
be  little  difficulty  in  substituting  them  for  perpetual 
concessions,  due  compensation  being  given  for  the 
loss  inflicted  on  the  private  proprietors.  As  part  of 
that  compensation,  municipalities  might  buy  the 
land  owned  by  the  companies,  receiving  rent  for  it ; 


CHAP.  xiiL]  CONCLUSIONS  425 

or,  what  would  come  to  much  the  same  thing,  they 
might  guarantee  the  debenture  interest.  By  some 
such  arrangement  as  this,  the  compensation  payable 
might,  at  all  events,  be  considerably  diminished. 
But,  whether  the  privilege  would  be  much  used  or 
not,  it  would  in  my  opinion  be  right  that  the 
Commission  should  have  the  power  at  the  demand 
of  any  municipality  of  deciding  on  the  compensation 
payable  to  the  owners  of  perpetual  concessions  on 
cancelling  these  concessions,  and  of  deciding  on  the 
terms  of  the  new  concessions  to  be  issued  in  their 
stead. 

(42)  In  conclusion,  it  should  be  understood  that 
the  proposals  here  made  for  the  reform  of  legislation 
having  reference  to  the  private  management  of 
monopohes  should  be  considered  merely  as  tentative 
suggestions.  INIy  object  has  been  to  show  that  much 
remains  to  be  done  in  this  direction,  and  that,  in 
considering  the  policy  to  be  adopted  for  the  future, 
JNIunicipal  Trade  ought  to  be  compared  with  private 
trade  conducted  under  far  more  efficient  safeguards 
than  those  which  exist  at  present. 

Note. — Valuation  is  a  matter  for  experts  to  deal  mth  in  detail ; 
and,  not  being  an  expert,  these  notes  must,  even  more  than  the 
matter  in  the  text,  be  regarded  as  tentative  only.  There  are 
several  possible  methods  of  valuation  which  could  he  adopted 
when  the  right  of  purchase  is  reserved  by  municipalities  in  termin- 
able concessions. 

(1)  Tlie  mar'ket  value ;  or  the  price  which  would  have  to  be  paid 
by  private  purchasers  in  the  open  market  for  a  going  concern.  This 
is  obviously  the  right  basis  of  valuation  when  a  company  owns  a 
perpetual  concession,  and  when  the  works  are  being  purchased 
compulsorily  under  a  private  Act  of  Parliament ;  for  in  such  cases, 
if  it  be  once  admitted  that  it  is  right  to  give  less  than  the 
market  value,  then  there  is  no  logical  resting-place  until  complete 
confiscation  is  reached.     Whether  any  additional  sum  should  be 


426  PRIVATE   TRADE  [chap.  xiii. 

given  on  account  of  the  purchase  being  compulsory  in  cases  where 
there  is  no  just  cause  of  complaint  against  the  private  proprietors 
need  not  here  be  discussed ;  for  such  purchases  are  not  now  under 
consideration.  The  market  value  of  a  going  concern  at  the  end  of 
a  concession  period,  when  rights  of  purchase  are  retained,  depends 
on  the  terms  by  which  those  purchase  rights  are  reserved ;  and 
the  phrase  market  value  standing  alone  becomes  meaningless  in 
these  circumstances.  It  would  be  possible  to  estimate  the  market 
value  of  an  undertaking  with  a  terminable  concession  on  the 
assumption  that  the  concession  had  been  granted  in  perpetuity. 
This  method  has  the  advantage  that  it  would  encourage  proprietors 
to  continue  to  develop  their  undertaking  to  the  end  of  their  con- 
cession period,  because,  market  prices  being  influenced  by  pro- 
spective profits,  they  w'ould  reap  some  benefit  from  judicious 
expenditure  before  it  became  productive.  The  objection  to  this 
valuation  is  that  it  hands  over  to  the  proprietor  the  whole  of 
the  increment  of  value,  except  such  sums  as  are  obtained  by  means 
of  variable  rents  or  sliding  scales  of  prices ;  expedients  which  are, 
however,  never  quite  satisfactory.  A  more  serious  objection  to 
this  valuation  is  that,  when  valuable  rights  over  public  streets 
have  been  granted  to  i)rivate  proprietors  for  little  or  no  valuable 
consideration,  the  public  would,  under  this  system,  have  to  buy 
them  back  at  their  full  market  value.  There  is  no  reason  why 
the  public  should  pay  anything  whatever  for  buying  back  rights 
they  freely  grant  to  private  owners  for  a  period  of  years  only. 

(2)  The  sum  invested ;  or  the  amount  of  cash  actually  invested  by 
the  existing  proprietors  in  buying  their  property  and  in  developing 
it.  The  objection  to  this  valuation  is  that  it  may  include  money 
paid  corruptly  or  injudiciously  in  acquiring  the  concession,  money 
expended  on  faulty  works,  and  sums  representing  the  inflation  of 
capital  occurring  through  amalgamations  or  at  the  transference 
of  the  property  from  j^revious  owners.  To  guard  against  this 
evil,  and  to  insure  that  the  sum  actually  invested  should  always 
correspond  with  a  sum  representing  the  proper  and  legitimate  capital 
expenditure  on  the  enterprise  would  certainly  necessitate  an  ex- 
cessively strict  control  by  the  State ;  and  even  such  a  control 
would  very  likely  not  produce  the  required  result.  For  this 
reason  this  system  of  valuation  should  be  rejected. 

(3)  The  legitimate  capital  expenditure ;  or  the  capital  expenditure 
which  would  have  been  incurred  by  original  proprietors  acquiring 
a  concession  direct  from  the  State  and  only  expending  their  capital 
in  erecting  at  fair  prices  the  actual  works  in  existence,  and  in 


CHAP,  xm.]  NOTE   ON   VALUATION  427 

providing  for  the  necessary  and  legitimate  formation  expenses,  less 
a  reasonable  allowance  for  wear  and  tear,  dependent  on  the  state 
of  the  works.  The  objections  to  this  system  are  as  follows  : — (a)  All 
capital  expenditure  would  cease  for  a  long  time  before  the  close  of 
the  concession  period,  because  investments  are  as  a  rule  at  first 
unremunerative.  This  objection,  which  applies  equally  to  the  last- 
mentioned  system  of  valuation,  might  be  met  by  including  in  the 
valuation  a  sum  representing  interest  at  a  diminishing  rate  on  all 
authorised  capital  expenditure  incurred  during  a  short  period  before 
the  valuation  took  place.  Under  concessions  giving  municipalities 
the  right  of  purchase  at  all  times,  proprietors  would  thus  be  secured 
against  actual  loss  from  new  developments  ;  and  they  would  there- 
fore continue  to  make  progress  in  the  reasonable  expectation  of 
being  allowed  to  remain  in  possession,  (h)  Legitimate  incorporation 
expenses  would  have  to  be  included ;  and  many  years  after  the 
granting  of  the  concession  they  would  be  difficult  to  estimate, 
(c)  If  the  proprietors  erected  unsuitable  works,  the  public  would 
have  to  pay  for  their  blunders,  (rf)  The  proprietors  may  have 
erected  works  which  were  the  most  suitable  that  could  have  been 
erected  at  the  time,  and  they  may  have  built  them  in  the  most 
economical  manner ;  but,  at  the  date  of  the  purchase,  such  works 
might  be  quite  out  of  date,  and,  even  if  they  were  not  so,  it  might 
be  possible  to  build  them  more  cheaply.  The  public  therefore 
might  under  this  system  have  to  pay  more  than  if  they  had  to 
erect  new  works,  and  might,  into  the  bargain,  become  possessed  of 
an  obsolete  system.  On  the  other  hand,  the  public  would  not  be 
worse  off  than  if  they  had  erected  the  works  themselves  at  the  date 
of  the  granting  of  the  concession,  and  it  is  not  therefore  an  inequit- 
able system  for  a  short  period  after  the  concession  has  been  granted. 
The  advantage  of  this  system  is  that  it  is  the  method  most  calcu- 
lated to  attract  capital,  and  that,  with  it,  concessions  may  be  either 
for  short  periods,  or  the  right  of  purchase  at  all  times  may  be  retained. 
(4)  TJie  replacement  cost ;  or  the  cost  at  the  date  of  purchase 
of  building  new  works  capable  of  producing  the  same  output  as 
the  works  purchased,  less  an  allowance  for  wear  and  tear.  The 
objections  to  this  system  of  valuation  are  as  follows : — (a)  The  fact 
that  the  valuation  depends  on  the  cost  of  erecting  something 
different  from  that  which  is  bought  introduces  considerable  diffi- 
culties ;  as,  for  example,  with  reference  to  the  necessary  allowance 
for  wear  and  tear.  To  obtain  a  correct  valuation,  the  value  of  the 
plant  as  it  stands  must  first  be  ascertained,  and  this  sum  must 
then  be  deducted  from  the  estimated  value  of  the  same  plant  when 


428  PRIVATE   TRADE  [chap.  xni. 

new ;  the  difference  between  tliese  two  estimates,  or  the  allowance 
for  wear  and  tear,  must  then  be  deducted  from  th^  estimated  cost 
of  new  works  of  the  most  approved  pattern  which  are  estimated  to 
be  capable  of  producing  the  same  output  as  the  old  works ;  and  thus 
the  correct  valuation  is  finally  obtained.  Three  separate  valuations 
are,  therefore,  necessary,  (h)  By  this  method  of  valuation  as  above 
defined,  no  allowance  is  made  for  formation  expenses ;  and  the  cost 
of  erecting  new  works  may  be  less  than  the  original  cost  of  erecting 
the  works  which  are  being  sold.  For  these  reasons  the  sum  received 
by  the  proprietors  is  likely  to  be  less  than  the  sum  actually  and 
necessarily  expended  by  them.  The  result  would  be  either  that  the 
capital  would  not  be  forthcoming,  or,  if  it  were  forthcoming,  that 
the  consumer  would  be  inequitably  taxed  during  the  concession 
period.  This  constitutes  the  chief  objection  to  this  system ;  for  it 
necessitates  long  concessions  being  granted. 

Tlius  it  appears  that  the  legitimate  capital  expenditure  is  the 
best  basis  for  valuation  for  short  concessions,  and  that  the  replace- 
vient  cost  is  the  best  basis  for  long  concessions.  The  cost  of 
erecting  electric  lighting  stations  fell  very  rapidly  a  few  years  ago, 
and  a  purchase  at  a  replacement  cost  valuation  shortly  after  the 
granting  of  a  concession  would  have  inflicted  a  very  heavy  loss  on 
the  proprietors.  On  the  other  hand,  when  buying  up  gas-works, 
for  example,  after  they  had  been  running  for  more  than  half  a 
century,  it  would  be  absurd  to  make  the  original  cost  of  the  works, 
including  the  original  formation  expenses,  a  main  consideration  in 
the  valuation.  Thus,  if  municipalities  are  to  have  the  ight  of 
purchase  at  any  time,  a  compromise  between  these  tw  systems 
should  be  adopted.  The  following  system  is  suggested.  The  price 
to  be  paid  should  be,  for  each  part  of  the  work  capable  of  separate 
valuation,  whichever  is  the  greater  of  the  two  following  valuations  : 
— {A)  The  legitimate  capital  expenditiire,  phis  some  allowance  for 
interest  on  capital  shortly  after  its  expenditure,  and  minus  an 
allowance  for  wear  and  tear,  less  (say)  3  per  cent,  per  annum  foi' 
every  year  since  the  expenditure  was  incurred,  or  {B)  the  replacement 
cost  less  an  allowance  for  wear  and  tear.  If  this  plan  were  adopted, 
for  some  years  after  the  construction  of  the  works  in  question  the 
legitimate  capital  expenditure  would  probably  serve  as  the  basis 
of  the  valuation  ;  whilst  at  a  later  period  the  price  would  be 
determined  by  the  replacement  cost.  The  private  proprietor  would, 
it  is  true,  always  receive  the  higher  of  two  valuations ;  but  this 
objection  would  only  be  urged  against  this  compromise  by  those 
who  failed  to  understand  its  economic  results. 


CHAP,  xiii]  NOTE   ON   VALUATION  429 

In  the  foregoing  discussion,  the  plant,  machinery  and  formation 
expenses  have  been  mainly  kept  in  view.  As  to  the  land  on  which 
the  works  may  stand,  if  the  valuation  were  made  on  the  basis  of 
the  cost  of  replacement,  it  would  be  logical  to  assess  its  value 
according  to  the  price  of  similar  land  at  the  date  of  the  purchase. 
But  this  might  be  very  much  more  than  the  sum  it  actually  cost 
the  private  proprietor.  The  Local  Authority  should  therefore  have 
the  right  of  having  the  value  of  the  land  ascertained  and  inserted  in 
the  concession  at  any  time,  and  of  buying  the  land  at  any  subse- 
quent time  at  that  valuation  with  or  without  buying  the  works,  the 
rent  to  be  paid  for  the  land,  if  bought  without  the  works,  being 
determined  by  the  Commission.  See  on  this  subject  W.  Z.  Ripley 
on  the  "Capitalisation  of  Public  Service  Corporations,"  in  the 
Quart.  Journal  of  Economics  of  November  1900 ;  and  Vesey  Knox 
on  the  "Economic  Effect  of  the  Tramways  Acts,"  in  the  Economic 
Journal  of  December  1901. 


XIV 


CONCLUSION 


(1)  The  main  arguments  for  and  against  Municipal 
Trade,  which  have  been  discussed  in  the  foregoing 
pages,  may  be  very  briefly  summarised  as  follows : 
The  arguments  against  Municipal  Trade  are  that 
it  greatly  increases  the  danger  of  municipal  corrup- 
tion ;  that  it  diminishes  competition  and  checks 
commercial  progress ;  that  it  may  make  Town 
Councils  less  able  to  perform  their  normal  duties 
efficiently ;  that  the  enterprises  selected  will  be 
intrinsically  less  remunerative  than  if  the  selection 
had  been  left  in  private  hands ;  that  the  manage- 
ment will  be  more  costly ;  and  that  it  practically 
places  in  the  hands  of  some  Local  Authorities, 
and  not  of  others,  the  power  of  raising  indirect 
taxation  on  certain  goods.  The  following  argu- 
ments in  favour  of  Municipal  Trade  were  also 
considered  :  First  amongst  these  arguments  was  that 
founded  on  the  undoubted  fact  that  the  workmen 
employed  by  municipalities  receive  better  treatment 
than  if  the  work  had  remained  under  private 
proprietors ;  but  it  appeared  that  this  argument 
could  not  be  sustained,  because  the  State  is  not 
justified  in  selecting  a  special  class  on  which  to 
bestow  special  favours  at  the  expense  of  the 
remainder.  The  second  argument  in  favour  of 
IMunicipal   Trade   was   that   prices   would    thus    be 


430 


CHAP.  XIV.]        SUMMARY   OF   ARGUMENTS  431 

reduced,  or  that  a  profit  available  for  the  relief  of 
taxation  would  thus  be  made ;  but  the  available 
information  indicates  that  remunerative  undertak- 
ings, if  leased  to  private  companies,  would  be  a 
source  of  revenue  to  municipalities,  and  many  cir- 
cumstances make  it  probable  that  the  more  industry 
is  left  in  private  hands,  the  more  rapid  will  be 
industrial  progress  ;  whereas  statistics  indicate  that 
any  further  municipal  expenditure  on  remunerative 
undertakings  will  result  in  an  immediate  increase 
of  local  taxation ;  and,  as  to  the  ultimate  con- 
sequences, and  merging  together  the  interests  of 
the  consumers  and  the  ratepayers  of  the  past, 
present,  and  future,  a  iwiori  reasoning  renders  it 
probable  that  the  community  will  neither  gain  nor 
lose  materially  as  the  result  of  the  municipal 
management  of  monopolies ;  and,  for  the  foregoing 
reasons,  it  would  therefore  be  most  unwise  to  base 
our  poHcy  for  the  future  on  the  hope  of  any 
financial  benefits  to  either  consumers  or  ratepayers 
from  Municipal  Trade.  Even  if  the  statistical  results 
of  Municipal  Trade  in  the  past  should  prove  on 
further  investigation  to  be  more  hopeful  than  is  here 
indicated,  it  must  be  remembered  that  this  experi- 
ence is  somewhat  scanty.  To  quote  a  parallel  case, 
if  a  landlord  were  to  raise  a  loan  by  a  mortgage  on 
his  land,  and  were  to  invest  the  proceeds  in  half  a 
dozen  commercial  enterprises,  to  show  that  he  had 
made  a  net  profit  during  the  first  thirty  or  forty 
years  of  his  speculation  could  not  be  taken  as  a  proof 
that  it  would  be  wise  to  follow  his  example  ;  because, 
as  a  general  rule,  in  the  absence  of  special  oppor- 
tunities, and  taking  losses  into  account,  the  gross 
profits  thus  made  are  likely  to  be  no  greater  than 


432  CONCLUSION  [chap.  xiv. 

the  interest  payable  on  the  debts  incurred.  The  last 
and  far  the  most  important  argument  in  favour  of 
Municipal  Trade  is  that  councillors,  unlike  directors, 
will  not  be  guided  by  profit  alone,  and  will,  there- 
fore, be  more  prompt  to  remedy  grievances  involving 
expenditure,  and  will  be  ready  to  undertake  various 
services  necessary  for  the  health,  the  morals,  and 
the  general  convenience  of  the  community,  which 
are  not  sufficiently  remunerative  to  tempt  private 
proprietors  to  undertake  them.  Though  this  argu- 
ment may  be  unanswerable  in  the  case  of  some  of 
the  trades  tending  to  become  monopoHes,  it  has  little 
weight  in  the  case  of  competitive  industries,  provided 
they  are  uninjurious  ;  because  Municipal  Trade  gives 
no  valuable  safeguards  to  consumers  who  already 
possess  the  power  of  changing  their  sources  of  supply. 
(2)  As  regards  ordinary  competitive  trades,  the 
case  for  JNIunicipal  Trade  in  fact  breaks  down 
utterly ;  whereas,  with  regard  to  monopolies,  this 
cannot  be  said  to  be  the  case.  If  a  company 
obtains  such  a  power  as  that  of  breaking  up  the 
streets,  it  may  thus  acquire  a  practical  monopoly  of 
the  sale  of  certain  commodities ;  and  in  such  cases 
it  is  essential  that  the  State  should  exercise  a  certain 
control  over  the  industry,  and  should  regulate  prices 
within  certain  limits.  This  necessary  control  brings 
with  it  some  of  the  evils  of  INIunicipal  Trade,  the 
greater  the  control  the  greater  being  the  attendant 
disadvantages,  though,  of  course,  the  greater  the 
power  of  safeguarding  the  consumer.  The  balance 
of  advantage  and  disadvantage  may  therefore  be  far 
more  even  in  the  case  of  trades  tending  to  become 
monopolies,  and  the  decision  far  more  difficult  to 
make.     If  the   monopoly  be  allowed  to  remain  in 


CHAP,  siv]         SUMMARY   OF  ARGUMENTS  433 

private  hands,  how  much  will  the  citizen  be  in- 
convenienced, and  how  well  can  the  consumer  be 
protected  by  the  State?  And  can  and  should  the 
ratepayer  or  the  consumer  be  made  to  share  with 
the  shareholder  in  the  advantages  arising  from  the 
growth  of  the  town  and  from  economic  manage- 
ment? On  the  other  hand,  if  an  industry  be 
transferred  to  a  Local  Authority,  will  the  consumer 
be  as  well  supplied,  and  will  local  taxation  thus 
be  increased  or  diminished  ?  These  are  the  main 
questions  which  should  be  considered  with  regard 
to  each  separate  industry  before  it  is  handed  over 
to  municipal  management.  As  regards  the  question 
of  convenience,  it  was  seen  that  it  might  be  right 
for  the  care  of  the  surface  of  the  streets  to  be 
entirely  in  the  hands  of  the  Local  Authorities ; 
but  that  such  an  admission  did  not  carry  with  it 
the  conclusion  that  tramways,  or  other  w^orks  built 
on  municipal  property,  sho^jld  therefore  be  managed 
by  a  local  governing  body. 

(3)  The  foregoing  being  the  main  arguments  for 
and  against  INIunicipal  Trade,  the  logical  way  to 
attack  the  problem  under  consideration  is  to  take 
each  enterprise  the  municipalisation  of  which  has 
been  undertaken  or  suggested ;  to  weigh  carefully 
all  these  arguments  as  they  are  applicable  to  each 
one  separately ;  and  then  to  decide  in  which  cases 
municipal  enterprise  is  on  the  whole  advantageous. 
In  proportion  as  the  possibility  of  competition  is 
greater,  in  proportion  as  the  number  of  workmen 
employed  is  greater,  in  proportion  as  the  risk 
involved  is  gi'eater,  in  proportion  as  the  demand 
for  the  commodity  supplied  is  less  universal,  and 
in   proportion  as   the   business   is   more   difficult  to 

2  E 


434  *  CONCLUSION  [chap.  xiv. 

manage,  in  proportion  to  each  of  these  varying 
circumstances  must  the  case  in  favour  of  munici- 
palisation  be  stronger  before  such  a  step  can  be 
held  to  be  advisable.  But,  besides  such  general 
considerations  as  these,  many  special  circumstances 
connected  with  different  localities  at  different  times 
may  have  to  be  taken  into  account ;  such  as 
the  size  of  towns,  and  the  local  aptitude  for 
self-government ;  though,  since  changeable  factors 
should  not  weigh  too  much  in  making  decisions 
difficult  to  retract,  these  points  are  generally  of 
less  importance.  Every  one  who  makes  such  an 
enquiry  must  come  to  the  conclusion  that  some 
enterprises,  whether  they  be  called  trades  or  not, 
are  best  managed  by  local  elected  bodies,  whilst 
others  are  not.  Great  diversity  will,  however, 
naturally  exist  as  to  the  exact  place  at  which  the 
line  should  be  drawn.  Pending  further  enquiry, 
I  myself  am  disposed  to  say  that  markets,  public 
baths,  slaughter-houses,  and  cemeteries  had  better 
not  be  in  private  hands ;  that  water  supply  should 
generally  be  municipalised ;  that  harbours  should 
often  be  managed  by  I^ocal  Authorities,  or  by 
specially  constituted  public  bodies ;  that  there  is 
much  to  be  said  in  favour  of  tramway  tracks  being 
owned  and  repaired  by  municipalities ;  but  that,  as 
a  rule,  private  trade  is  preferable  for  telephones, 
gas-works,  electrical  works,  tramways,  and,  without 
doubt,  for  all  truly  competitive  trades,  the  case 
against  Municipal  Trade  being  weakest  in  the  first- 
mentioned  services.  As  regards  telephones,  gas  and 
electrical  works,  if  once  municipalised,  it  might  not 
be  wise  to  retransfer  them  to  private  hands. 

(4)  After  separating  the  enterprises  under   con- 


CHAP.  XIV.]       QUESTIONS   TO   BE   DECIDED  435 

sideration  into  these  two  great  classes — those  which 
it  is  right  to  place  under  the  control  of  public 
bodies  and  those  which  it  is  not — we  should 
naturally  wish  to  discover  some  formula  by  which 
to  distinguish  the  two ;  a  formula  by  which  we 
could  in  future  decide  at  once  whether  any  par- 
ticular enterprise  should  or  should  not  be  muni- 
cipalised. A^^ith  regret  I  must  confess  that  I  have 
found  it  impossible  to  discover  any  such  general 
guiding  principle.  Water-supply  is  worked  by 
private  companies  for  a  profit  on  purely  com- 
mercial principles ;  and,  if  we  once  admit,  as  I 
do,  that  it  may  often  be  right  to  municipalise  it, 
we  shall  find  it  very  hard  to  discover  any  simple 
form  of  words  which  will  cover  this  action,  and 
yet  condemn  the  municipalisation  of  other  com- 
mercial ventures  which  ought  to  remain  in  private 
hands.  Each  case  must  be  judged  separately  by 
the  way  in  which  the  balance  will  turn  when  the 
scales  are  loaded  with  all  the  conflicting  argu- 
ments, there  being  no  royal  road  to  a  simple 
solution  of  the  problem. 

(5)  But  here  it  should  be  observed  that  there 
are  two  distinct  questions  to  be  considered ; 
questions  which  are  often  somewhat  confused  one 
with  the  other,  especially  by  INIembers  of  Parlia- 
ment. What  trades  should  Parliament  permit 
municipalities  to  manage  ?  AVhat  works,  within 
the  powers  thus  granted,  would  municipalities 
wisely  undertake  ?  The  action  of  Parliament  must 
be  governed  to  a  great  extent  by  rules  and  pre- 
cedents ;  and  the  character  of  towns  differ  so 
widely  that  no  rule  could  be  framed  which  would 
be  suitable  to  all,  and  precedents  established  in  one 


486  CONCLUSION  [chap.  xn-. 

case  are,  therefore,  often  bad  guides  for  other 
locahties.  ParHament  is  not  so  well  able  to  con- 
sider all  the  local  conditions  as  are  the  Local 
Authorities  on  the  spot,  and  Parliament,  therefore, 
ought,  in  many  cases,  to  leave  to  the  municipalities 
concerned  the  decision  as  to  what  is  right  or  wrong. 
Such  a  trust  in  I..ocal  Authorities  is  in  accordance 
with  our  constitution  and  with  the  spirit  of  the 
people.  But  Parliament  should  forbid  the  munici- 
palisation  of  any  industry  when  it  is  held  that  such 
municipalisation  would  be  wrong  in  all  places  and 
in  all  circumstances ;  and  I  should,  therefore,  wish 
to  see  the  municipalisation  of  all  truly  competitive 
industries,  such  as  the  manufacture  of  electrical 
fittings  for  example,  definitely  prohibited  by 
Parliament.  An  exception  to  this  rule  is  probably 
necessary  in  the  case  of  the  manufacture  of  residual 
products,  when  such  manufacture  is  essential  for 
the  economic  working  of  some  monopoly ;  but  any 
such  extension  of  municipal  management  into  com- 
petitive fields  should  be  jealously  watched.  As  to 
gas-works,  electric-works,  and  tramways,  many 
>Iembers  of  Parliament  may  feel  as  I  do,  that, 
though  they  would  prefer  to  see  these  services 
remain  in  private  hands,  yet  they  are  not  now 
prepared  to  declare  that  in  no  circumstances  what- 
ever should  these  industries  be  managed  by  repre- 
sentative bodies,  and  they  would  be  still  less 
prepared  to  cancel  any  such  rights  of  management 
as  have  now  been  granted.  Moreover,  if  existing 
municipal  gas-works  are  to  be  allowed  to  remain 
as  at  present,  the  political  difficulty  of  refusing  to 
grant  the  right  to  other  municipal  governments  to 
manage   similar   works   cannot  be   ignored,     Parlia- 


CHAP,  xiv]  POWERS  OF  LOCAL  AUTHORITIES  437 

ment  cannot,  in  fact,  be  expected  to  draw  a  much 
more  rigid  line  than  at  present  with  regard  to  the 
monopohes  already  frequently  entrusted  to  I^ocal 
Authorities.  But  any  precedent  set  with  regard 
to  competitive  trade  should  not,  I  hold,  be  allowed 
to  carry  any  weight.  For  example,  the  provisions 
in  Acts  of  Parliament  which  permit  municipalities 
to  own  houses  and  actually  to  build  them — that  is 
without  the  employment  of  a  contractor — should 
be  repealed ;  though  I  have  little  hope  of  Parlia- 
ment taking  so  bold  a  step.  In  fact,  as  to  the 
limitation  of  municipal  trading,  Parliamentary  re- 
form must,  for  the  most  part,  consist  in  changes 
in  Standing  Orders,  in  the  establishment  of  new 
precedents  and  in  the  ignoring  of  certain  old 
ones. 

(6)  ^Yith   regard   to   the   second    of    these    two 
questions,    if    Parliament    leaves    the    decision    on 
many  points  in  the  hands  of  Local  Authorities,  it 
follows   that   these    Local    Authorities    must    often 
be  enabled  to  do  things  which  they  had  better  not 
do.      No   objection   to   the  existing  system  should, 
however,   be  raised   on   this   ground  only ;    for  it  is 
the    inevitable    result    of    any   wise    devolution    of 
powers   and   duties.       It   would,   no   doubt,   be   ad- 
vantageous if  a  rule  could  be  devised  which  would 
serve  as  a  guide  to  municipalities  in  deciding  what 
enterprises  should  be  undertiiken ;  but  I  can  suggest 
none,  and   all  that  have  been   suggested  by  others 
appear   to   me  to  break  down  on  careful  examina- 
tion.    It  is,  therefore,  consolatory  to  think  that  no 
such  rule,  could  one  be  devised,  would  be  as  useful 
as    would    at   first   siglit    appear    probable.       If    we 
tell   the   advocate   of  municipal  enterprise  that  the 


438  CONCLUSION  [chap.  xiv. 

establishment  of  municipal  electrical  works,  for 
example,  is  against  our  formula,  whatever  it  may 
be,  he  will  simply  tell  us  that  that  formula  must 
be  altered.  He  will  not  be  stopped  from  doing 
something  he  thinks  beneficial  by  any  such  in- 
tangible barrier  as  a  rule  or  principle.  Our  task 
must  always  be  to  convince  him  that  the  proposal 
is  really  injurious  when  it  is  so,  and  this  can  only 
be  done  by  proving  to  him  that  the  advantages 
are  outweighed  by  the  disadvantages  in  the  particular 
industry  under  consideration. 

(7)  But  even  if  we  agree  that  Parliament  is 
wise  in  trusting  municipalities  with  wide  powers, 
and,  even  if  we  cannot  formulate  any  guiding 
rule  as  to  the  proper  limits  of  municipal  trading, 
we  may,  nevertheless,  feel  convinced  that  Local 
Authorities  have  gone  too  far  in  this  direc- 
tion, and  that  they  are  showing  every  disposition 
to  advance  still  further.  This  certainly  is  my 
conviction,  and  in  these  circumstances  I  hold  that 
we  ought  to  consider  very  carefully  whether  a 
brake  cannot  be  applied  in  order  to  put  some 
check  on  this  movement,  and  to  keep  municipal 
adventure  in  the  future  within  reasonable  limits. 
There  are  two  kinds  of  precautions  which  might 
be  adopted.  We  may  make  changes,  or  adopt 
economic  safeguards,  which  are  intrinsically  de- 
su'able,  or  we  may  introduce  what  may  be  described 
as  political  checks ;  that  is,  arrangements  which  are 
devised  to  secure  a  desired  end,  but  which  are 
not  in  themselves  intrinsically  beneficial.  In  the 
preceding  chapters  these  political  possibilities  have 
received  but  little  consideration ;  our  attention 
having  been  confined  mainly  to  desirable  economic 


CHAP.  xiY.]  PRIVATE  TRADE  439 

safeguards.  These  safeguards  against  unwise  muni- 
cipal trading,  which  have  ah-eady  been  discussed, 
will  first  be  briefly  epitomised. 

(8)  First  amongst  these  checks  I  would  place 
certain  legislative  reforms  affecting  private  trade ; 
and,  before  recapitulating  my  suggestions,  it  may  be 
as  well  to  point  out  why  this  question  is  in  danger 
of  being  considered  in  a  one-sided  fashion.  Before 
all  committees  of  enquiry,  and  at  all  conferences, 
the  witnesses  and  speakers  consist  mainly  of  two 
classes ;  that  is,  they  are  either  advocates  of 
Municipal  Trade,  or  they  are  persons  interested 
in  the  promotion  of  private  trade.  The  views  of 
both  these  parties  have  often  been  admirably  ex- 
pressed. But  is  there  not  another  great  class  to 
be  consulted  ?  Surely  the  consumer,  or  the  ordinary 
citizen,  ought  to  have  a  say  in  the  matter ;  and  yet 
his  voice  is  generally  silent.  It  is  his  views  that  I 
have  in  this  volume  tried  to  enunciate.  One  of 
the  sentiments  that  tells  most  strongly  in  favour 
of  Municipal  Trade  with  the  mass  of  the  people  is 
the  belief  that  the  consumer  will  get  his  grievances 
more  readily  attended  to  if  a  trade  is  managed  by 
an  elected  body  than  if  it  is  owned  by  a  private 
proprietor.  Though  the  great  companies  who 
manage  our  gas  and  water-works  have,  on  the 
whole,  served  the  community  very  well,  yet  there 
is  a  certain  foundation  for  these  complaints  ;  and 
that  foundation  we  ought  to  remove.  \A4ien  we 
are  granting  to  private  traders  valuable  rights 
connected  with  the  use  of  our  streets,  would  it 
not  be  wise  to  retain  the  full  right  to  remedy  all 
the  reasonable  grievances  of  the  future  consumers 
of  the  commodities  thus  to   be  supphed  ?     Yet,  as 


440  CONCIAJSION  [chap.  xiv. 

regards  any  minor  grievances  against  gas,  electrical, 
or  other  such  companies,  the  ordinary  citizen  is  now 
in  a  position  of  great  helplessness.  By  increasing 
the  control  over  private  monopolies  we  are  no  doubt 
running  into  many  of  the  dangers  attached  to 
municipal  trading.  But  the  dangers  of  controlling 
private  enterprise,  though  very  real,  are  much  less 
than  the  dangers  of  Municipal  Trade;  and  as  the 
choice  lies  between  the  two,  by  all  means  let  us  have 
controlled  private  trade.  At  present  sufficient  atten- 
tion is  not  paid  to  the  complaints  of  citizens  against 
private  proprietors ;  and  until  Ave  do  attend  more  to 
such  grievances,  even  if  many  of  them  are  unreason- 
able, it  cannot  be  said  that  we  are  doing  our  best  to 
stem  the  advancing  tide  of  municipal  enterprise. 

(9)  Reforms  should,  therefore,  undoubtedly  be 
made  in  the  legislation  affecting  private  trade  with 
the  object,  not  only  of  freeing  it  from  undesirable 
restriction,  but  also  of  adding  desirable  restrictions. 
The  exact  steps  to  be  taken  are,  no  doubt,  open  to 
serious  question.  JNIy  suggestions  include  changes 
with  regard  to  concessions,  which  should  be  granted 
without  a  named  limit  of  years,  but  including  the 
right  of  purchase  by  Local  Authorities  at  all  times 
on  such  terms  as  will  not  throttle  private  enterprise  ; 
restrictions  on  the  power  of  veto  on  private  enter- 
prise now  exercised  by  municipalities ;  wide  powers 
of  inspection  by  municipalities  of  all  the  affairs  of 
companies  receiving  such  municipal  concessions  ;  and 
the  appointment  of  an  independent  and  technical 
commission  to  decide  any  questions  that  may  arise 
between  the  Local  Authorities  who  represent  the 
citizens  and  the  companies  managing  monopolies  in 
their   districts.     Until   some  such   reforms   as   these 


CHAP,  xn.]     LIMITATION  OF  INDEBTEDNESS  441 

have  been  adopted,  INIunicipal  Trade  will  present 
many  advantages  to  which  it  has  no  exclusive 
right. 

(10)  As  regards  the  poUtical  checks  which  have 
been  suggested  with  the  object  of  cHpping  the  wings 
of  municipahties,  the  two  most  important  proposals 
are  the  limitation  of  municipal  debts  and  the  pro- 
hibition of  profits  in  municipal  trades.  As  to  the 
former,  municipal  debt  limit  clauses  in  some  form 
or  other  have  been  inserted  in  nearly  every  State 
constitution  adopted  in  the  United  States  during 
the  last  half  century ;  the  limitation  imposed  on 
municipalities  as  to  their  indebtedness  ranging 
between  2  and  10  per  cent,  of  the  assessed  value 
of  property  returned  for  taxation.^  These  limitations 
appear  to  have  been  introduced  in  order  to  check 
grants  in  aid  to  private  companies  rather  than  to 
check  municipal  trading  in  the  ordinary  sense.  In 
England  debt  limitation  should  be  discussed  with 
reference  rather  to  municipal  extravagance  than 
to  Municipal  Trade ;  and  in  that  connection  the 
question  is  a  most  important  one.  As  to  municipal 
trading  debts,  the  importance  of  the  available 
assets  cannot  be  ignored ;  for,  though  further 
enquiry  is  greatly  needed,  and  though  in  some 
cases  the  assets  are  certainly  not  sufficient  to  cover 
the  debts  incurred,  yet  there  is  no  reason  to  suppose 
that,  as  regards  the  more  definitely  trading  enter- 
prises, the  assets  are  not,  on  the  average,  of  more 
value  than  the  outstanding  debts.  The  fact  that 
considerable  sums  have  already  been  redeemed 
renders   this    result    probable.      From   the  financial 

^  See  Hon.  R.  P.  Porter'.s  paper  at  the  British  Association,  September 
1902. 


442  CONCLUSION  [chap.  xiv. 

point  of  view  there  is,  however,  one  serious  danger 
connected  with  JMunicipal  Trade  which  must  ever 
be  kept  in  view;  and  against  this  danger  a  debt 
hmitation  clause  would  be  very  valuable.  If,  in 
any  town,  municipal  trading  has  been  largely  under- 
taken, and  if  for  any  cause  the  population  begins  to 
decline  before  the  debts  thus  incurred  have  been 
redeemed  to  any  material  extent,  the  result  must 
be  a  reduction  in  municipal  profits  and  an  increase 
in  local  taxation.  And  the  serious  aspect  of  the 
case  is  that,  in  these  circumstances,  taxation  is 
likely  to  go  on  increasing  at  a  geometrical  ratio ; 
for  the  desire  of  the  inhabitants  to  leave  the 
neiglibourhood  will  increase  with  every  increase  of 
taxation ;  and  the  burden  of  taxation  will  increase 
with  every  new  departure  of  inhabitants.  There  are  in 
these  circumstances  every  condition  necessary  to  pro- 
duce commercial  disaster  and  municipal  bankruptcy. 

(11)  But  there  are  certain  objections  to  muni- 
cipal debt  limitations  which  must  not  be  overlooked. 
In  the  first  place,  wliere  municipal  trading  is 
popular,  such  a  limitation  of  borrowing  powers 
might  induce  Local  Authorities  to  neglect  some  of 
their  primary  functions ;  unless,  indeed,  a  separate 
limitation  could  be  placed  on  municipal  trading 
debts,  which  would  be  difficult.  Then,  again,  it 
must  be  remembered  that  limitations  have  a 
tendency  to  stimulate  an  advance  up  to  the  limit 
imposed ;  and  it  might  well  be  that  some  muni- 
cipalities, by  being  induced  to  borrow  up  to  the 
limit,  would  become  more  indebted  than  if  no 
such  limitation  had  existed.  It  would  be  difficult 
to  devise  a  rule  which  would  vary  with  the  exist- 
ing state  of  indebtedness  of  each  town ;  and  if  so. 


CHAP.  XIV.]       A   MUNICIPAL   REFERENDUM  443 

it  follows  that  in  England  the  limitation  imposed 
would  have  to  be  a  very  wide  one,  and  that  it 
would  only  come  into  operation  in  extreme  cases. 
Considering  these  objections,  and  how  difficult  it 
would  be  to  induce  Parliament  to  take  such  an 
unpopular  step,  I  am  not  yet  convinced  that  it 
would  be  wise  at  present  to  agitate  in  favour  of 
this  reform. 

(12)  A  check  on  the  increase  of  municipal 
indebtedness  which  would  in  my  opinion  be  more 
effective  on  the  whole,  and  certainly  more  easy 
of  introduction,  would  be  to  give  the  citizens  in 
all  localities  a  direct  veto  on  the  raising  of  loans. 
This  might  be  done  by  enacting  that,  before  any 
Local  Authority  could  acquire  the  right  to  raise 
any  new  loan,  a  vote  should  be  taken,  voting 
papers  being  sent  to  all  voters  by  post,  together 
with  a  statement  as  to  the  amount  of  the  loan 
and  its  objects.  Some  means  might  have  to  be 
devised  for  exempting  small  loans  fi'om  the  opera- 
tion of  such  a  law.  Advantage  might  also  be 
taken  of  such  a  proposal  to  strengthen  the  hands 
of  the  Local  Government  Board ;  for  it  might  be 
enacted  that  their  inspector's  report  should  always 
accompany  the  voting  paper.  A  project  unfavour- 
ably reported  on  by  such  an  independent  authority 
would  in  many  cases  be  rejected ;  for  citizens  are 
generally  less  favourably  disposed  towards  nmni- 
cipal  trading  projects  than  coimcillors,  and  many 
enterprises  would  never  be  undertaken  but  for  the 
apathy  of  the  voters  in  expressing  their  opinions. 
Such  a  referendum  would  not  be  opposed  to  hberal 
prmciples,  and  it  woidd  be  a  \aluable  safeguard 
against  municipal  extravagance  in  all  its  forms. 


441  CONCLUSION  [chap.  xiv. 

(13)  Passing  on  to  the  second  of  the  above- 
mentioned  means  of  checking  municipal  adven- 
ture, namely  the  prohibition  of  profit-making 
in  municipal  trades,  it  appears  that  many  I^ocal 
Authorities  are  unduly  tempted  by  the  hope  of 
reducing  taxation,  and  that  this  hope  affords  the 
advocates  of  Municipal  Trade  a  cogent  argument 
in  its  favour.  This  subject  has  already  been 
partially  discussed  in  chap,  xii.,  where  it  appeared 
that  this  proposal  is  open  to  serious  economic 
objections,  at  all  events  as  regards  trades  with 
debts  partially  or  wholly  redeemed ;  that  it  would 
be  difficult  to  enforce  because  of  the  difficulty  of 
giving  a  definition  of  the  jyrojit  to  be  prohibited, 
and  because  of  the  minute  inspection  which  would 
be  necessary  to  prevent  such  an  enactment  from 
being  evaded ;  and  that  too  low  prices,  and  con- 
sequently small  or  no  profits,  are  likely  to  be  a 
far  more  real  danger  than  too  high  prices  and 
excessive  profits.  As  to  the  last- mentioned  point, 
it  is  true  that,  when  but  a  small  fraction  of  the 
voters  .ire  supplied  by  a  municipal  manufactory, 
the  Local  Authority  will  be  under  some  tempta- 
tion to  raise  prices  and  thus  to  make  large  profits 
for  the  benefit  of  the  more  numerous  body  of 
unaffected  voters.  But  such  a  temptation  ought 
seldom  to  be  felt ;  for  such  trades  should  seldom 
be  municipalised.  Moreover,  if  I^ocal  Authorities 
were  forced  to  carry  on  their  enterprises  without 
making  a  profit,  it  would  not  lessen  the  dis- 
advantages arising  from  such  trading  operations ; 
in  fact,  it  might  increase  them  somewhat.  The 
compulsory  absorption  of  profits  would  probably 
be   partially   effected   by   a   further   increase  in   the 


CHAP,  xiv]  PROHIBITION   OF   PROFITS  445 

pay   of  municipal   workmen,   or   by  a  reduction  in 
municipal    rents ;    and    the    tendency   to   municipal 
corruption   would   thus  become   even   more  formid- 
able.     If,   on   the   other   hand,   the   profits   had   to 
be    absorbed   by   a   reduction   in   prices,   the    inter- 
ference with  private  trades  would  become  even  more 
harmful   than   it  is  at  present ;   because   this  would 
be    equivalent    to    municipalities    not    only    being 
enabled    but    being    obliged,    when     their    trading 
debts   were    redeemed,   to    spend    the    interest    on 
their    accumulated    savings    in    giving    bounties    to 
the    consumers    of   goods    produced   by   their   o\^^l 
manufactories.     The  prohibition  of  profits  is,  there- 
fore, intended  to   defeat  an   argument   rather   than 
to   cure    an   evil ;    and,   if    it   does   not   defeat    the 
argument,   the   evil   may   thus   be   increased.     This 
will  be  seen  to  be  a  serious  objection  to  this  pro- 
posal when  it  is   remembered   that   the   prohibition 
of  profits   in   Scotland   has   had    little   tendency   to 
prevent  municipal  trading.     Lastly,  it  is  impossible 
to   ignore    the    keen    opposition   which    would     be 
aroused  by  any  attempt  to   force   great   cities    like 
Birmingham   and    Manchester   to   forego   the    large 
profits  they  are   now  making  and  to  increase  local 
taxation  to  a  like  amount.     For  all   these   reasons, 
the  legal  prohibition  of  profit-making  would,  in  my 
opinion,  be  unadvisable.     But  the  hope   of  making 
a  profit  is,  no  doubt,  one  of  the  main  objects  which 
many  advocates  of  municipal  trading  have  in  view ; 
and,  as  municipal  enterprises  should  not  be  under- 
taken  with   this    object,   it    would,   without   doubt, 
be   advantageous   to   lessen   this    temptation.      This 
proposal,  which  is  supported  by  very  high  authorities, 
and  any  other  proposal  aiming  at  the  same  results, 


446  CONCLUSION  [chap.  xiv. 

should,    therefore,    undoubtedly    receive    the    most 
careful  attention. 

(14)  Several   important   reforms   in   the   English 
Local  Government  suffrage   laws   are  needed ;  but, 
as  they   are,  for  the   most   part,   more   relevant   to 
the  question  of  extravagance  tlian  to  the  question 
of    Municipal     Trade,    they    will    be    but    briefly 
discussed    here.       There     are,    I     believe,    millions 
of    English    voters    who    pay    no    rates,    and    who 
do   not   perceive    that    their    rents   are   affected   by 
any    increase    or    decrease    in    the   rates   falling   on 
their   landlords.      Rents   may   not    be    immediately 
or  uniformly  affected  by  rates ;  but  on  the  average 
and  in  the  long  run  it  may  truly  be  said  that  rent- 
payers  are  also  ratepayers.     It  is  of  vital  importance 
that  this  fact  should   be  recognised ;   and  it  would 
be  most  beneficial  if  either  all  tenants  were  made 
to   pay  the   rates   themselves,  or   if  in   some   other 
way  all  voters  were  made  to  feel  that  they  are  in 
effect  ratepayers.     No  other  step  would   have   such 
an  effect  in  tending  to  produce  municipal  economy. 
Unfortunately   it    has    been   stated   on   the   highest 
authority     that,     as     to     rates,     "  it     is     generally 
"  agreed   that   the   practical  difficulties  of  collecting 
"and  enforcing  payment  from  the  large  numbers  of 
"the    poorest   classes   in   the   large   towns  who   are 
"  weekly  tenants   and    frequently  moving  from  one 
"  tenement  to  another,  are  insuperable  "  ;  though  why 
this   statement    should    be    made,    considering    that 
the      unrated      householder     does     not     exist     in 
Scotland,    I    do   not   know.^      The   number   of  un- 
rated  voters    might,   at    all   events,   be   diminished. 

^  "  Final  Report  of  the  Royal  Commission  on  Local  Taxation,"  1901, 
p.  51. 


CHAP,  xiv]  THE   UNRATED   VOTER  447 

But,  whether  any  such  change  would  greatly  lessen 
Municipal  Trade  may  be  doubtful,  a  doubt  which 
experience  in  Scotland  tends  to  confirm.  Municipal 
trades  are  generally  initiated  in  periods  of  municipal 
energy,  and,  consequently,  of  municipal  efficiency ; 
and  it  will  not  be  until  this  efficiency  wanes,  or 
until  unforeseen  changes  take  place  in  any  of  the 
main  conditions  affiscting  the  trades  undertaken, 
that  the  shoe  will  begin  to  pinch  and  the  voter 
will  begin  to  be  influenced  by  a  trade  loss  and 
by  a  consequent  increase  of  taxation.  It  will  then 
generally  be  too  late  to  retrieve  the  initial  mistake. 
But,  as  a  means  of  drawing  the  attention  of 
voters  to  all  matters  affecting  or  possibly  affecting 
local  taxation,  the  abolition  of  the  compounding 
system  would  be  invaluable.  I  much  fear,  how- 
ever, that  we  shall  have  to  wait  a  long  time 
before  this  reform  is  taken  in  hand ;  for,  even  if 
practicable,  the  political  forces  opposed  to  it  are 
very  strong. 

(15)  Another  very  difficult  question,  and  one 
more  relevant  to  INIunicipal  Trade,  is  that  con- 
nected with  the  rating  of  the  property  of  companies. 
The  "  liberal "  principle  of  taxation  going  hand  in 
hand  with  representation  is  entirely  overlooked  in 
the  case  of  shareholders ;  for  they  are  in  effect  rate- 
payers who  have  no  voice  whatever  in  the  imposi- 
tion of  local  taxation  or  in  the  expenditure  of  the 
revenue  thus  raised.  The  importance  of  this 
question  may  be  illustrated  by  the  single  fact 
that  one  great  London  railway  company  now 
pays  close  on  £200,000  a  year  in  rates  alone,  and 
that  this  amount  represents  an  increase  of  more 
than   150   per   cent,   on   what   it  was  twenty  years 


448  CONCLUSION  [chap.  xiv. 

ago?  But,  thoiio'li  it  is  easy  to  state  the  grievance, 
it  is  difficult  to  suggest  a  remedy.  The  arguments 
in  favour  of  giving  to  one  man  one  vote  whetlier 
he  contributes  httle  or  much  towards  the  national 
expenditure  depend  on  the  fact  that  all  men  have 
an  equal  right  to  demand  justice,  and  that  the 
poor  man  needs  protection  and  attention  more  than 
the  rich.  Bearing  this  in  mind,  it  would  be  hard 
to  defend  giving  to  the  nominee  of  a  company  the 
right  to  \'ote  in  proportion  to  the  rates  paid  by 
that  company.  In  a  parish  where  a  railway 
company  pays  "  practically  the  whole  of  the  local 
"  rates,"  and  where,  as  would  most  frequently  be 
the  case,  there  is  not  a  single  resident  shareholder, 
any  attempt  at  progress  in  education,  sanitation,  or 
recreation  would  be  brought  to  a  standstill  by  such 
a  system ;  for  shareholders  would  naturally  instruct 
their  nominees  to  oppose  all  rates  for  which  they 
received  no  equivalent  benefit.  If  the  company's 
nominee  were  empowered  to  vote,  but  not  in  full 
proportion  to  the  rates  paid  by  the  company,  the 
same  evil  effects  would  still  be  felt  in  extreme  cases, 
whilst  the  shareholders  would  still  have  a  grievance 
at  not  being  fully  represented.  INIoreover,  any  such 
reform  would  probably  necessitate  a  ver^'  serious 
modification  of  our  whole  voting  system  in  order 
to  enable  companies  to  vote  in  proportion  to  the 
rates  paid  by  them.  All  this  is  true  until  we  come 
to  consider  the  case  in  connection  with  rating  for 
municipal  trading  purposes,  when  the  matter  bears 
a  very  different  aspect.  Here  it  is  the  rich  man 
who  needs  protection  because  of  his  riches.  Even 
as  regards  the  question  of  justice,  how  is  it  possible 

^  Times,  lltli  November  1902. 


CHAP,  xiv]         TAXATION   OF   COMPANIES  449 

to  defend  the  imposition  of  taxation  or  even  of  a 
liability  to  taxation  on  unrepresented  shareholders 
in  order  to  facilitate  the  establishment  of  a  rival  to 
themselves  in  trade,  which  may  be  the  case  when 
a  railway  company  is  forced  to  pay  rates  to  Local 
Authorities  who  are  initiating  tramway  enterprises  ? 
How  is  it  possible  to  defend  the  power  which  Local 
Authorities  have  of  paying  their  workmen  a  higher 
rate  of  wages  than  those  paid  by  companies  who 
are  forced  to  supply  the  necessary  funds  without 
such  companies  having  any  effective  means  of  pro- 
testing? On  the  other  hand,  if  companies  were 
given  voting  powers,  they  would  by  no  means  be 
opposed  to  enterprises  which  would  either  diminish 
taxation  or  increase  the  value  of  property.  There 
is,  in  fact,  no  reason  why  shareholders  should  not 
be  granted  voting  powers  in  proportion  to  the  rates 
paid  if  JNIunicipal  Trade  alone  had  to  be  considered ; 
and  the  logical  thing  to  do  would  be  to  establish  a 
separate  elected  body  for  the  management  of  such 
enterprises,  the  number  of  votes  given  by  each 
voter  being  solely  based  on  the  amount  of  the 
rates  paid  by  him.  Without  doubt,  moreover,  we 
should  in  this  way  check  the  tendency  to  under- 
take unwise  trading  enterprises,  and  create  a  body 
more  fit  to  manage  such  industries  as  were  muni- 
cipalised. There  would  be  a  difficulty  in  deciding 
which  of  the  remunerative  undertakings  sliould  be 
managed  by  this  specially  elected  body,  and  the 
multiplication  of  elected  bodies  is  always  somewhat 
objectionable ;  but  the  main  difficulty  in  the  way  of 
this  proposal  is  a  purely  political  one,  namely  the 
fierce  opposition  it  would  call  forth. 

(16)  Thus  far   have   we   been   occupied   in   con- 

2  F 


450  CONCLUSION  [chap.  xiv. 

sideling  reforms  undertaken  mainly  with  the  definite 
object  of  preventing  municipahties  from  under- 
taking trades  unless  the  case  in  favour  of  such 
trading  is  well  established.  But  municipal  trades 
will  be  undertaken  both  wisely  and  unwisely,  and 
reforms  ought  to  be  introduced  with  the  object  of 
minimising  the  harmful  effects  of  such  enterprises. 
All  my  suggestions  on  this  point  have  already  been 
discussed,  including  the  more  rapid  redemption  of 
debts  when  profits  are  being  made ;  the  abolition  of 
preferential  charges ;  the  introduction  of  a  Govern- 
ment audit ;  the  more  rigid  enforcement  of  the 
laws  as  to  municipal  expenditure ;  a  referendum  on 
local  loans ;  and  the  separate  enfranchisement  of 
municipal  workmen.  Reforms  of  this  nature  are  in 
my  opinion  desirable ;  though  of  these  only  the  last 
mentioned  would  very  materially  lessen  the  objec- 
tions to  Municipal  Trade. 

(17)  Thus  the  reforms  here  suggested  have 
three  distinct  objects  in  view:  the  rendering  of  the 
management  of  monopolies  by  private  proprietors 
more  suitable  to  the  needs  of  the  community ;  the 
prevention  of  INIunicipal  Trade  when  it  would  be 
undesirable;  and  the  lessening  of  the  disadvantages 
attending  Municipal  Trade  when  it  is  undertaken. 
Other  reforms  than  those  here  suggested  should, 
no  doubt,  be  taken  into  consideration ;  such,  for 
example,  as  reforms  in  the  methods  of  assessment; 
an  increased  control  by  Local  Authorities  over 
expenditure  either  by  the  formation  of  finance 
committees  with  statutory  powers  or  by  other 
means ;  and  changes  in  parliamentary  procedure  in 
the  direction  of  increasing  the  facilities  given  to 
private  individuals  or  associations  in  opposing  bills 


cBAP.  xiv]  CONCLUSION  451 

introduced  by  Corporations.  INIy  list  is,  without 
doubt,  defective  and  incomplete ;  but  it  certainly 
proves  the  necessity  for  an  iinmediate  and  thorough 
consideration  by  the  I^egislature  of  the  whole 
question  of  JNIunicipal  Trade. 

(18)  There  are,  unfortunately,  at  present  many 
influences  antagonistic  to  a  rational  treatment  of 
this  subject.  In  the  early  part  of  last  century 
economists  and  liberal  statesmen  were  in  all 
probability  too  much  imbued  with  the  ideas  of 
individualism ;  but  at  the  present  time  the  pendu- 
lum has  swung  too  much  in  the  opposite  direction. 
Local  Authorities  in  England  are,  on  the  whole, 
admirable  bodies,  and  councillors  deserve  the  highest 
praise  for  the  immense  amount  of  voluntary  work 
undertaken  by  them.  I  am  the  very  last  person 
to  wish  either  to  lessen  their  reputation  or  to  cur- 
tail their  powers  of  administration.  But  they,  like 
their  fellow-countrymen  generally,  have  gone  too  far 
in  certain  directions  in  their  acceptance  of  Socialist 
ideas.  The  "true  reasons  in  favour  of  leaving 
"  to  voluntary  associations  all  such  things  as  they 
"are  competent  to  perform  would  exist  in  equal 
"strength  if  it  were  certain  that  the  work  itself 
"  would  be  as  well  or  better  done  by  public  officers." 
These  reasons  are  :  "  the  mischief  of  overloading  the 
"  chief  functionaries  of  government  with  demands  on 
"their  attention,  and  diverting  them  from  duties 
"  which  they  alone  can  discharge,  to  objects  which 
"  can  be  sufficiently  well  attained  without  them ; 
"the  danger  of  unnecessarily  swelling  the  direct 
"power  and  indirect  influence  of  government,  and 
"  multiplying  occasions  of  collision  between  its  agents 
"  and  private  citizens ;  and  the  inexpediency  of  con- 


452  CONCLUSION  [chap.  xiv. 

"  centrating  in  a  dominant  bureaucracy,  all  the 
"  skill  and  experience  in  the  management  of  large 
"  interests,  and  all  the  power  of  organised  action, 
"  existing  in  the  community ;  a  practice  which  keeps 
"the  citizens  in  a  relation  to  the  government  like 
"that  of  children  to  their  guardians,  and  is  a  main 
"  cause  of  the  inferior  capacity  for  political  life 
"  which  has  hitherto  characterised  the  over-governed 
"  coimtries  of  the  Continent,  whether  with  or  with- 
"  out  the  forms  of  representative  government."  ^  The 
lesson  thus  stated  by  Mill  as  regards  the  central 
government  has  been  forgotten,  and  must  be  learnt 
again  by  municipahties  as  regards  local  government, 
if  they  are  to  travel  on  the  path  along  which  pro- 
gress can  best  be  made. 

(19)  Reform  is  much  needed;  but  what  is 
even  more  necessary  than  legislative  reform  is  an 
awakening  of  public  interest  in  municipal  questions. 
A  minority  of  the  citizens  in  most  towns  are  so 
active  that  they  somewhat  hide  the  great  apathy 
of  the  majority.  I  should  have  no  fears  as  to 
the  future  of  municipal  enterprise  in  England  if 
Englislnnen  generally  would  form  their  own  in- 
dependent opinions,  whatever  they  might  be,  and 
would  take  the  trouble  to  express  them  at  the 
polls.  Every  one  who  endeavours  to  bring  about 
this  desirable  end  is  doing  good  service  for  his 
country. 

^  "  Political  Economy,"  Mill,  Ijook  v.  chap.  xi.  para.  11. 


APPENDIX 

JOINT    COMMITTEE   ON   MUNICIPAL    TRADING    OF    1903 

Whilst  this  volume  has  been  passing  through  the 
press,  the  Report  of  the  Joint  Select  Committee  of 
the  House  of  Lords  and  the  House  of  Commons  on 
INIunicipal  Trading  has  been  issued.  The  main  con- 
clusions arrived  at  by  this  Committee  are  contained 
in  the  following  extracts  from  this  Report : — 

1.  The  present  Committee  may  be  regarded  as  continuing  the 
inquiry  held  by  the  Joint  Committee  on  Municipal  Trading  ap- 
pointed in  1900,  an  identical  Keference  having  been  made  in  each 
case. 

5.  The  Committee  felt  that  any  attempt  to  survey  the  general 
subject  of  Municipal  Trading  could  only  have  led  to  a  second  post- 
ponement of  the  inquiry,  as  it  would  have  been  impossible  for  them 
in  the  short  time  available  before  the  close  of  the  Session  (when  the 
existence  of  every  Committee  is  terminated)  to  issue  a  Report  upon 
the  whole  subject. 

They  agreed,  therefore,  to  devote  their  attention  to  one  or  more 
distinct  aspects  of  the  question,  passing  by  others  until  Parliament 
should  be  pleased  to  direct  further  inquiry. 

6.  The  first  branch  of  the  subject  with  which  the  Committee 
decided  to  deal  was  that  of  municipal  accounts,  with  regard  both  to 
the  form  in  which  they  are  prepared,  the  systems  under  which  they 
are  audited,  and  the  right  of  access  to  them  possessed  by  the  rate- 
payers. The  evidence  taken  has  been  mainly  directed  to  these 
questions. 

7.  Whatever  view  may  be  taken  of  the  proper  limits,  if  any, 

458 


454  APPENDIX 

wliicli  can  be  set  to  municipal  trading,  it  is  clearly  important  that 
wherever  it  exists,  ratepayers  should  be  not  less  fully  and  con- 
tinuously informed  of  the  success  or  failure  of  each  undertaking 
than  if  they  were  shareholders  in  an  ordinary  trading  company. 

8.  In  a  large  number  of  cases  this  is  undoubtedly  done.  But 
there  is  in  some  instances  evidence  to  a  contrary  effect,  and  in  view 
of  the  ever-increasing  number  and  magnitude  of  municipal  under- 
takings, it  is  most  desirable  that  a  high  and  uniform  standard  of 
account-keeping  should  prevail  tlu'oughout  the  country. 

10.  The  Committee  have  directed  full  attention  to  the  question 
of  audit. 

11.  The  Committee  recommend  that  a  uniform  system  of  audit 
should  be  applied  to  all  the  major  local  authorities,  viz.:  the 
Councils  of  counties,  cities,  towns,  burghs,  and  of  urban  districts. 

14.  All  County  Councils,  the  London  Borough  Councils,  and 
Urban  District  Councils  are  subject  to  the  Local  Government  Board 
audit.  This  audit  is  carried  out  by  District  Auditors,  who  as  a  rule 
are  not  accountants,  and  are  not,  in  the  opinion  of  the  Committee, 
properly  qualified  to  discharge  the  duties  which  should  devolve 
upon  them.  By  special  local  Acts  the  Corporations  of  Tunbridge 
Wells,  Bournemouth,  and  Southend-on-Sea  must,  and  the  Corpora- 
tion of  Folkestone  may,  adopt  the  Local  Government  Board  system 
of  audit.  The  duties  of  the  auditors  seem  to  be  practically  confined 
to  certification  of  figures,  and  to  the  noting  of  illegal  items  of 
expenditure. 

15.  To  apply  this  system  of  audit  to  Municipal  Coi*porations 
would  arouse  strenuous  opposition  from  them,  and  the  course  may 
be  considered  impracticable ;  but  in  addition  to  this  the  fact  that 
district  auditors  are  not  accountants  seems  to  unfit  them  as  a  class 
for  the  continuous  and  complicated  task  of  auditing  the  accounts 
of  what  are  really  great  commercial  businesses. 

16.  The  Committee  accordingly  recommend  that — 

(a)  The  existing  systems  of  audit  applicable  to  corpora- 
tions, county  councils,  and  urban  district  councils  in  England 
and  Wales,  be  abolished. 

(b)  Auditors,  being  members  of  the  Institute  of  Chartered 
Accountants  or  of  the  Incorporated  Society  of  Accountants 


APPENDIX  455 

and  Auditors,  should  be  appointed  by  the  three  classes  of 
local  authorities  just  mentioned. 

(c)  In  every  case  the  appointment  should  be  subject  to 
the  approval  of  the  Local  Government  Board,  after  liearing 
any  objections  made  by  ratepayers,  and  the  auditor,  who 
should  hold  office  for  a  term  not  exceeding  five  3'^ears,  should 
be  eligible  for  re-appointment,  and  should  not  be  dismissed 
by  the  local  authority  without  the  sanction  of  the  Board. 

(d)  In  the  event  of  any  disagreement  between  the  local 
authority  and  the  auditor  as  to  his  remuneration,  the  Local 
Government  Board  should  have  power  to  determine  the 
matter. 

(e)  The  Scots  practice  of  appointing  auditors  from  a 
distance,  in  preference  to  local  men,  to  audit  the  accounts  of 
small  burghs  should  in  similar  cases  be  adopted  in  England. 

17.  The  Committee  are  of  opinion  that  it  sliould  be  made  clear 
by  statute  or  regulation  that  the  duties  of  those  entrusted  with  the 
audit  of  local  accounts  are  not  confined  to  mere  certification  of 
figures.     They  therefore  further  recommend  that — 

(a)  The  auditor  should  have  the  right  of  access  to  all 
such  papers,  books,  accounts,  vouchers,  sanctions  for  loans, 
and  so  forth,  as  are  necessary  for  his  examination  and 
certificate. 

(/>)  He  should  be  entitled  to  require  from  officers  of  the 
Authority  such  information  and  explanation  as  may  be 
necessary  for  the  performance  of  his  duties. 

18.  Auditors  should  be  required  to  express  an  opinion  upon  the 
necessity  of  reserve  funds,  of  amounts  set  aside  to  meet  depreciation 
and  obsolescence  of  plant  in  addition  to  the  statutory  sinking  funds, 
and  of  the  adequacy  of  such  amounts. 

19.  The  auditor  should  also  be  required  to  present  a  report  to 
the  Local  Authority.  Such  report  should  include  observations  upon 
any  matters  as  to  which  he  has  not  been  satisfied,  or  which  in  his 
judgment  called  for  special  notice,  particularly  with  regard  to  the 
value  of  any  assets  taken  into  account. 

20.  The  Local  Authority  should  forward  to  the  Local  Govern- 
ment Board  both  the  detailed  accounts  and  the  report  of  the 


456  APPENDIX 

auditor  made  upon  them.  It  sliould  he  tlie  duty  of  the  auditor  to 
report  independently  to  the  Board  any  case  in  which  an  autliority 
declines  to  carry  out  any  recommendation  made  hy  him. 

21.  A  printed  copy  of  the  accounts,  with  the  certificate  and 
report  of  the  auditor  thereon,  should  be  supplied  by  the  Local 
Authority  to  any  ratepayer  at  a  reasonable  charge. 

27.  The  Committee  suggest  that  in  view  of  the  large  changes 
recommended  by  them  it  might  be  advisable  to  create  a  new  body, 
in  the  form  of  a  Board  of  Commissioners  of  Local  Audit,  in  some 
respects  analogous  to  the  Railway  Commission.  This  body  could 
be  entrusted  with  the  powers  which  the  Committee  recommend  in 
their  Report  should  be  vested  in  the  Local  Government  Board. 


INDEX 


Accounts,  Inspection  of,  418,  419 
Ac-worth,  W.  M.,  11671 
Adams,  Alton  D.,  420/? 
Administration,  Stimulus  to,  94  ;  and 

corruption,  94  et  seq. 
Allotments  of  garden  land,  Provision 

and     maintenance     of,     by     Local 

Authorities,   20 
Amalgamation  of  Companies,   49  ;    of 

municipal  enterprises,  147-149 
America,  Salaries  in,  152 
Arbitration  as  to  prices,  415 
Areas,    Local   Government,    Effect   of, 

146 
Artisans'    and    Laboiu'ers'    Dwellings 

Acts,  17 
Associations  of  masters  and  men,  160 
Auditors,  382  ;  for  private  companies, 

382,  419 
Avebury,  Lord,  297?i ;  on  the  adoption 

of  a  policy  of  municipalisation,  241, 

343 
Average   results   of   nnmicipal   under- 
takings, 269 

Bakbe,  M.  N.,  153?i 

Ball,  W,  Valentine,  149?i 

Ballot,  Vote  by,  how  far  a  protection 

to  the  voter,  112 
Bands,      Free,      provided     by     Local 

Autliorities,  21 
Bargaining    in    trades    managed     by 

public  bodies,  309 
Bathing  machines,  in  Hastings,  4 
Baths,  Municijial,  4  ;  in  Germany,  4  ; 

advantages  of,  75 

and  Wash-houses  Act,  The,  4 

Belgium,  The  gas  sujiply  in,  11 
Bemis,  E.  W.,   153n,  155«,  253?i  ;  on 

corruption  in  America,  119,  120 
Berlin,    Municipal   lodging-houses   in, 

20 
Birkenhead  Ferries,    Net  profit  from, 

6,  237 
Birmingham   Corporation,  Lease  of  a 

right  to  run  tramways  by,  180 

Council,  141 

;■  tramways,  236 

water  supply,  7,  87 


Blackpool  Corporation,  Refusal  of,  to 
gi'ant  licences  to  omnibuses,  165 

tramways,  100 

Board  of  Tiade,  The,  Duties  of,  393 

Boards  or  Trusts  for  management  of 
Harbours,  5 

of     Directors,      compared     with 

Councils,  137  ;  the  most  important 
functions  of,  142 

Bonus  System,  The,  Evil  cflects  of,  330 

Bootli,  Cliarles,  on  the  wages  of 
employees,  161 

Bouet,  H.,  his  '*  Le  Munieipalism,"  287i 

Bounties  to  consumers,  351,  352 

Boyle,  Sir  Courtenay,  171?;  ;  on  the 
receipts  from  gas  sold  by  Local 
Authorities  and  private  companies 
respectively,  252,  254 

Bradford,  Slunicipal  Electric  Light 
works  in,  12  ;  tramwavs,  143 

Bruce,  Wallace,  336 

Bryce,  James,  112/;,  Win,  125;i  ;  on 
corruption  in  the  United  States,  119 

15uilding,  Cost  of,  311,  332  ;  losses  on, 
328,  335  ;  undertaken  by  muni- 
cipalities, 316 

operations,  effect  on  wages,  330 

regulations,  324 

trade,  Private,  323,  324,  341 

Buildings,  Rent  of,  370 

I5ureaucratic  tendencies,  155,  156 

Business,  Effect  of  increase  of  muni- 
cipal, 103 

men,  Absence  of,  from  Councils, 

102 

Caxapa,  The  payment  of  civic  servants 

in,  152 
Cannan,  Edwin,  138/(,  346?i,  374)i 
Canvass  by  nnmicipal  employees,  115 
Capital,    bifliculty    of    raising,     143  ; 

ex]ienditure,      230  ;      invested     by 

nninicipalities  in  undertakings,  275  ; 

raised   by   taxation,  282 ;    watering 

of,  123,  417 
Capitalisation,  Excessive,  417 
Cemeteries,  Provision  and  maintenance 

of,  by  Local  Autliorities,  20,  76 
Centralised  system,  Evil  results  of  a,  303 
457 


458 


INDEX 


Charitable  eniploymont,  44,  45 

Chicago,  corruption  in,  119 

Chisholm,  S.,  160,  288??,  406?! 

Citizens,  as  consumers  and  rateiiaycrs, 
172  ;  the  complaints  of,  168 

Clearance  sclicmes,  323 

Clientele,  Value  oTa  large,  47,  51 

Cold  air  stores.  Municipal,  4 

Common  causes,  Efl'ect  of,  influencing 
industries,  269 

"Common  Good,"  of  Glasgow,  The, 
369,  371 

Commons,  J.  R.,  in  favour  of  direct 
employment  of  labour,  78,  12Sn, 
38371 

Companies,  amalgamation  of,  49  ;  own- 
ing perpetual  concessions,  416; 
rating  of  the  property  of,  447  ; 
taxation  of,  96,  447 ;  voting  ]iower 
of,  95 

Competition,  effect  of,  on  prices,  71  ; 
effects  of  indirect,  287  ;  free  or 
prohibited,  130  ;  in  construction, 
302;  in  starting  new  enterprises, 
302;  on  even  terms,  293  ;  prohilntion 
of,  399  ;  tendency  of,  to  die  a 
natural  death,  398 ;  tlic  case  for, 
71  ;  the  checking  of,  288 

Competitive  industries  and  monopolies, 
the  difference  between,  54,  296,  432' 

industries,   Little  ])rogress  made 

in  the  direction  of  public  ownership 
of,  54 

struggle,  Effects  of,  284 

trades,   conujition   in,  312  ;  risk 

in,  312 

Compound  Householders,  97 

Compounding  Svsteni,  the.  Evil  effects 
of,  97,  446 

Compulsory  purchase.  Valuation  for, 
202,  425 

Concession  Period,  The,  13,  401 

Concessions  acquired  by  gas  and  water 
companies,  13,  197  ;  acquired  on 
structural  value  terms,  16  ;  com- 
mission to  deal  with,  394,  421  ; 
cormption  due  to  ill -regulated,  129, 
411  ;  effect  of,  on  prices,  195-198, 
257;  electric  lighting  concessions, 
406 ;  evil  effect  of  concessions  in 
growing  districts,  126;  expiry  of  the 
terms  of  concessions,  410;  improperly 
acquired  concessions,  202 ;  legislation 
affecting  the  granting  of,  386,  388  ; 
limited  concessions,  258,  259,  403, 
408,  409  ;  perpetual  concessions,  129, 
196-202,  239,  259,  402,  403  ;  private 
owners  of  concessions  liable  to  be 
attacked  by  cornipt  autliorities,  123; 
sale  of,  415  ;  terminable  concessions, 
196-202,   239,   259;    terms   of,    388, 


413  ;  tramway  concessions,  400,  404; 
unrestricted  concessions,  52,  53  ;  veto 
on,  397 

Construction,  Competition  in,  302 

Contractors,  Tendere  of,  31  ;  profits  of, 
35,  77  ;  wages  given  by,  37 

Control  of  private  trade,  53,  72 

Corporations,  Want  of  initiative  in, 
145 

Corruption,  411  ;  and  high  wages,  43  ; 
in  competitive  trades,  312  ;  due  to 
building  operations,  343  ;  legislation 
against,  379  ;  tendency  to  municipal 
corruption  produced  by  the  existence 
of  a  number  of  employees  paid 
directly  by  municipalities,  104 

Cost  of  production,  Difficulty  in  the 
estimation  of,  73 

Councillors,  Dual  position  occupied  by, 
62  ;  election  of,  137-142  ;  fitness  of, 
102  ;  influences  affecting,  61  ;  pay- 
ment of,  103 

Councils,  Changes  in,  141  ;  disinclina- 
tion to  serve  on,  108  ;  the  most  im- 
portant functions  of,  142 

Curtis,  C.  E.,  129« 

Davies,  D.  H.,  97»i,  163rj,  282m 

Debts  of  municii)alities,  Eftect  of  in- 
crease in,  241  ;  redemption  period  of, 
359-360 

Depreciation,  227 

Direct  employment  of  Labour,  32,  35, 
77 

Directors,  compared  witli  Councillors, 
136  et  seq.,  307,  308  ;  election  of,  137- 
142 ;  remuneration  of,  169 ;  the 
most  important  functions  of,  142  ; 
when  managing  monopolies,  162 

Discijilinc  of  emploj-ees,  156-158 

Discontent,  Expression  of,  166,  167 

Disfranchisement,  379 

Disimtes  between  employers  and  em- 
ployed, 160 

Dividends,  Statutory  limitation  of,  162. 
163 

Donald,  Robert,  122/i 

Dublin  electric  tramways,  293,  294 

Dust  destructois.  Sale  of  the  residuum 
from,  21 

Economy,  Incentives  to,  162 

Edgeworth,  F.  Y.,  his  Aleatory  awl 
JUsk,  190/1 

Edinburgh  Municiiial  Workers'  Com- 
mittee, 115 

Elderton,  Miss  E.,  211% 

Electorate,  The,  Demoralisation  of, 
106 

Electrical  fittings,  The  manufacture  of, 
21,  99,  295,  307 


INDEX 


459 


Electrical  works,  advantages  oi'  muni- 
cipal works,  88  ;  management  of,  Ijy 
Local  Authorities,  13  ;  the  purchase 
of,  as  a  protection,  288 

Electric  Lighting  Acts,  Tlic,  13,  1-4,  406 

Lighting,  concessions,  406;  in  the 

United  States,  130  ;  orders,  290  ;  the 
municipalisation  of,  315 

l)ower  distribution,  292 

tramways.  Mileage   of,   in   Great 

Britain,  15 

Electricity,  Price  of,  253  ;  progress  of, 
in  England,  10  ;  rapid  development 
of,  in  the  United  States,  10 

Employees,  Discipline  of,  156-158  ; 
organisation  amongst,  106,  113  ;  pay 
of,  30,  156,  158,  159  ;  votes  of 
municipal  employees.  111 

Entertainments,  Municipal,  21 

Established  connections.  The  value  of, 
51 

Example,  Benefits  from  setting  a  good, 
33,  40,  41,  325 

Expenditure,  Omissions  from,  225 

Extravagance,  2,  282 

Fairlie,  J.  A.,  his   "Municipal  Ad- 
ministration," 3u,   1271,  25h,  2377(, 
395 
Fair,  wages  clauses,  30 
Fares,  Reductions  in,  257 
Farrer,  The  late  Lord,  his  "The  State 
in  its  relation  to  Trade,"  89n,  305n, 
413 ;  on  the  pressure  put  on  Membei's 
of  Parliament  to  raise  the  wages  of 
public  employees,  105 
Ferries,  Expenditiire  on,  6 
Fire  Insurance,  Municipal,  20 
Fowler,  Rt.  Hon.  SirH.  H.,  24m,  286)i; 
his  criticisms  on  municipal  statistics, 
210,  213,  221 
France,  The  gas  supply  in,  11 
Free  trade.  Advantages  of,  285 

Gain,  Definition  of,   176 

Garcke,  Emile,  225?i,  296;/ 

Gas,  The  introduction  of,  as  an  ilhunin- 
ant,  9 ;  in  Manchester,  10 ;  good 
profit  made  by  niunicii)alisation  of, 
192;  price  of  gas  sold  by  muni- 
cipalities and  private  companies 
resj)ectively,  252 

meters.  The  testing  of,  100 

stoves,   The    hiring    out    of,    by 

municipalities,  98 

works,  Advantages  of  municipal, 

88  ;  of  Philadelphia,  131  ;  profits  of, 
214  et  seq.,  242;  their  tendency  to 
become  monopolies,  49 

GeiTuany,  gas  works  in,  11  ;  municipal 
electric  light  plant  in,  12  ;  municipal 


pawnshops  and  savings  banks  in, 
20  ;  progress  of  electric  traction  in, 
15  ;  water  supply  in,  8 

Glasgow,  "Common  Good"  of,  the, 
369,  371 ;  cross  river  traliic  of,  294 ; 
hydraulic  power  works  in,  9 ;  model 
lodging-houses  in,  18 ;  paid  voters 
in,  115,  116;  stone  quarries  owned 
by,  21  ;  supply  of  stoves  at,  301  ; 
takes  over  the  tramways,  145; 
telephones  of,  22,  294 ;  tramcar 
built  by,  21  ;  tramway  fares  in,  84 ; 
wash-houses  in,  4  ;  water  works  of,  7 

Golf  links,  owned  by  a  corporation,  21 

Gommc,  G.  L.,  20n 

Good-will,  258 

Gray,  J.  H.,  "The  Gas  Commission  of 
Massachusetts,"  129ji,  396,  418 

Hadley,  a.  T.,  his  "  Economics,"  67j(, 
285?^,  310/i,  312^ 

Harbours,  municipal,  advantages  of, 
75  ;  management  of,  by  Local 
Authorities,  5 

Harrogate,  Medical  l>athing  establish- 
ments in,  5 

High  wages  and  corruption,  43 

Hill,  Miss  Octiivia,  342 

House  building,  operations  by  muni- 
cipalities, 17  ;  cost  of,  311  ;  under- 
taken by  nmnicipalities,  316 

property,  argument  for  muni- 
cipalising, 322 

Housing  of  the  Woi'king  Classes  Acts, 
The,  17-20,  326 

Huddersfield,  Model  lodging-house 
erected  by  tlie  Corporation  of,  18 

Tramways,  Tlie,  16 

Hughes,  Sir  Thomas,  160,  336/i 

Hydraulic  Power  works,  9,  315 

Ice,  manufacture,  municipalisation  of, 

4 
"  Increasing  return,"'  The  law  of,  47, 

48 
Increment,  Unearned,  195,  198-202 
Indebtedness,  Local,  24  ;  limitation  of, 

441 
Indirect  taxation,  350 
Initiative  in  Corporaticms,  Want  of,  145 
Inspection,   Right  of,    418  ;   possessed 

by  nmnicipalities,  99 
of  goods,  163  ;  comparative  laxity 

of,  164 
Inspections,  Cost  of,  182 
Instalment  system,  The,  366 
Insurance,  20 
Interest,  Low  rate  of,  and  high  wages, 

37 
Interest  on  loans,  Rate  of,  183,   186, 

187, 241,  357 


460 


INDEX 


Jeckem.,  J.  A.,  article  in  "Traction 

and  Transmission,"  87 n 
Jevons's  Criteria,  55 
Jobbery,  The  existence  of,  117 
Joint  Board  of  Management,  147,  377 

Kelly,  James,  294«. 
Knox,  Vesey,  405,  429 

Labour,  Direct  employment  of,  32,  35 

disputes,  104,  160 

Land,  Monopoly  in,  322 

Value  of,  for  building  sites,  336 

' '  Lectures  on  the  Principles  of  Local 
Government,"  G.  L.  Gomme's,  20?i 

Lecky,  Rt.  Hon.  AV.  E.  H.,  his 
"Democracy  and  Liberty,"  44?i, 
116/i,  118?i ;  on  the  pressure  put  on 
Members  of  Parliament  to  raise 
wages  of  public  employees,  105  ;  on 
corruption  in  New  York,  118 

Lee,  Alice,  her  examination  of  loans 
for  remunerative  work,  209,  306/1 

Leeds,  Tramways  in,  148 

Legislation  as  to  prices,  369 

Leigh,  E.  Chandos,  30S» 

Leroy-Beaulieu,  P.,  on  corruption  aris- 
ing from  State-paid  labour,  105, 
155?i ;  on  the  French  postal  budget, 
225)1 ;  on  freedom  of  private  traders, 
30471 

Lewis,  W.  D.,  131/1,  169n,,  224?i 

Light  Railways  Commissions,  394 

Liquor  traffic.  The  danger  of  unregu- 
lated trade  in,  74 

Limitation  of  output,  belief  of  English 
working  men  in  its  influence  upon 
wages,  159 

Limited  concessions,  258,  259 

Liverpool,  Cleared  areas  in,  323  ;  rents 
for  municipal  dwellings  in,  329 

water  supply,  8 

Livesey,  Sir  George,  his  attempt  to 
compaie  prices  of  gas,  254,  256 

Loans  and  rates,  209  ;  interest  on,  183, 
186,  387;  for  remunerative  work, 
209  ;  period  for  redemption  of,  229  ; 
rate  of  interest  on,  241,  357  ;  re- 
demption of,  365,  366 

Local  Authorities,  Competition  by,  400 ; 
consent  of,  397  ;  duties  of,  390  ; 
effect  of  increase  of  business  on,  103  ; 
estimation  of  the  gain  made  by  their 
trading  enterprises,  176  ;  municipal 
trades  started  by,  193  ;  progressive 
municipal  spirit  of,  26  ;  rents  paid 
to,  178  ;  powers  of,  437  ;  result  of 
additional  duties  being  undertaken 
by,  102  ;  right  of,  to  inspect,  163  ; 
semi-judicial  functions  imposed  on, 
163 


Local  affairs,  Lack  of  interest  in,  94  ; 

value  of  interest  in,  64 

Government  areas,  146-150,  310 

Board,  the,  Duties  of,  393  ; 

returns  of,  210 
Suffrage     Laws,      Reform 

needed  in,  446 

indebtedness,  24 

taxation,  177  ;  increase  in,  23 

Lodging-Houses  Act,  of  1851,  the,  17 
Loudon,   Improved   dwellings   erected 

liy  the  City  of,  18  ;  water  supply  of,  8 
Municipal  Authorities,  dwellings 

constructed  by,  342 
Low  prices.  Check  on  trade  from,  362  ; 

probability  of,  373 

Maltbie,  on  administrative  control  of 
Local  Authorities,  393 

Management,  Joint  Boards  of,  147 

I\Ianagement,  Benefits  from  change  of, 
65 

Managing  bodies.  Factors  determining 
the  business  capacity  of,  139  et  seq. 

]\lauchester.  The  Ship  Canal  of,  5  ;  gas- 
works of,  10,  233,  239  ;  tramways, 
148  ;  water  works,  7 

Markets,  Municipalised,  3,  76 

Marshall,  A.,  his  "  Principles  of 
Economics,"  487^,  415?^ 

Martin,  J.  W.,  on  corruption  in  Phila- 
delphia, 118,  122n 

Massachusetts  Commission,  394,  395, 
419 

gas,  395,  417 

Materials  not  charged  for,  225 

Medical  bathing  establishments,  5 

Milk  distribution  l)y  Local  Authorities, 
21 

Mill,  John  Stuart,  318ri,  452 

Miscellaneous  enterprises,  20 

Model  Lodging-Houses,  The  erection 
of,  18 

Modern  industrial  life.  Evils  of,  286 

Mond  Gas  Bill,  292?t 

Money,  The  facilities  for  raising,  143, 
144 

Monopolies,  Economical  influences  less 
felt  in,  162  ;  effect  of  the  reduction 
of  prices  in  nmnicipal  monopolies, 
247,  432 ;  evil  effect  of  unregulated 
monopolies,  53,  286  ;  increase  in  the 
number  of  monopolies  has  tended  to 
increase  the  desire  felt  for  Municipal 
Trade,  47  ;  o^\^lers  of,  not  injured 
much  by  competition,  307  ;  legisla- 
tion applied  to,  385  ;  prices  in,  71  ; 
tendency  of  industries  to  become 
monopolies,  52 

Monopoly  in  land,  322  ;  meaning  of 
monopoly,  47 


INDEX 


461 


Morse,  Sydney,  291n 

Mimicipal  Accotmts,  Errors  in,  224 

Amalgamations,  147,  148 

Bui'eaucracies,  Creation  of,  155 

Competition,  Discontent  at,  99  ; 

Corporations  Association,  289 

Corruption,  379 

Councils,   compared   with   Board 

of  Directors,  136  ct  seq.  ;  promotion 
amongst  the  staff  of,  153 

Debts,  Statistics  of,  25  ;  liquida- 
tion of,  359-362 

Dwellings,  Rents  for,  329 

Electric  light  works,  12 

Extravagance,  2 

"Municipal  Government,'"  Shaw's,  '3/i 

Housebuilding,  319  ei  seq.  ;  trades 

involved  in,  321 

Inspection,  99,  163-166 

Labour,  Excess   of  cost  of,   over 

private  labour  not  justified,  45 

Loans,  Interest  on,  186,  187 

Lodging-houses,  18-20 

Officials,  Salaries  of,  152,  153 

Ownership     without     municipal 

management.  The  possibility  of,  131 

Property,    Rating   of,    177,   226 ; 

taxation  of,  226 

Reproductive  Undertakings,  8 

Revenues,   23  ;   how  to  increase, 

185 

Salaries,  333 

Statistics,  207  et  seq.  ;  criticisms 

(ni,   by   Sir  Henry  Fowler  and  Mr 
Row-Fogo,  210 

Trade,  Advantages  of,  69  d  seq.  ; 

arguments  in  favour  of,  313,  321, 
430 ;  against,  326,  430  ;  available 
evidence  in  favour  of,  59  ;  average 
return  on  capital  in,  151,  269 ;  causes 
tending  to  make  it  less  remunerative, 
243  ;  causes  dissatisfaction  \\\i\\  the 
suffrage  laws,  95 ;  cost  of,  162 ; 
definition  of,  1  ;  direct  result  of 
283  ;  disadvantages  of,  340 ;  discipline 
in,  157,  158  ;  effect  of,  on  local 
administration,  94 ;  elected  repre- 
sentatives undertaking  it,  62  ; 
extension  of,  beyond  numicipal 
boundaries,  374  :  financial  effect  of, 
166  ;  forces  tending  to  promote,  63  ; 
gains  of  Municipal  Trade  234,  235  ; 
harmful  effect  of  additional  work 
thrown  on  Municipal  Councils  by  it, 
64,  101  ;  increase  of  wages  in,  34  ; 
indirect  effects  of,  278  et  seq. ;  legisla- 
tion with  reference  to,  346  et  seq.  ; 
not  a  recent  introduction,  2  ;  popu- 
larity of,  56-58  ;  prices  in,  247  et  seq., 
349  ;  profits  in,  211  ct  seq.,  350  ; 
sense  of  injustice  aroused  when  it 


enters  the  field  of  competitive  in- 
dustry, 98  ;  wages  in,  158,  358 

Municipal  Trading,  Extracts  from  the 
Report  of  the  Joint-Committee  on, 
453 

Municipalities,  A  corrupt  party  in, 
115  ;  direct  employment  of  labour 
])y,  32,  35  ;  facilities  of,  for  borrow- 
ing, 37,  186;  powers  sought  by,  22  ; 
puichase  of  undertaking  by,  183  ; 
rents  paid  to,  178,  194  ;  unrenmnera- 
tive  enterprise  of,  146  ;  voters  in  the 
pay  of,  115 

Municipalised  enterprises,  3 ;  the 
popularity  of,  an  uncertain  guide  to 
the  benefits  which  have  actually  been 
derived  from  it,  64 

Murphy,  W.  M.,  294/;. 

Neighbouring  municipalities.  Dis- 
content against,  100,  101 

Net  profits,  358-360,  368  ;  prohibition 
of,  370 

New  River  Company,  The,  origin  of,  7 

New  York,  Corruption  in,  124  ;  ferries 
of,  237 ;  Metropolitan  Railway  of, 
144 

Officials,   influences    affecting,    61  ; 

opinions    of,     how     far    free    from 

prejudice,  60,  61 ;  payment  of,  152  ; 

power  of,  155 
Omnibuses,  competition  amongst,  355 ; 

powers  granted  to  municipalities  to 

run,  17 
"  One  man,  one  vote,"  The  arguments 

for,  96,  97 
Originators,  Opinions  of,  63 
Outside  Areas,  Prices  in,  375 ;  trade  in, 

100,  101,  149,  375,  377 
Over-capitalisation,  417 
Overcrowding  in  cities,  331 

Palgbave's  "Dictionary  of  Econ- 
omics," IGOii 

Paris,  Gas  works  of,  237  ;  municipal 
lodging-houses  in,  20  ;  school  baths 
in,  4 

Patronage,  Effects  of,  109,  112 

Paving  flags,  316 

Pawnshops,  Advantages  of,  74  ;  muni- 
cipal, 20 

Pay  of  employees,  30,  156,  158,  159 

Payment  of  Councillors,  103 

Percentages  on  profits,  213 

Pcrrine,  F.  A.  C,  253/i 

Philadelphia,  Amalgamation  of  tram- 
ways in,  50 ;  corrui>tion  in,  118  ; 
gas  works,  131,  168,  224 

Piers,  Administration  of,  by  Local 
Authorities,  6 


462 


INDEX 


Police,  controlled  by  Local  Authorities, 
325 

powers  of,  165 

Policy,  Decisions  on  (jucstions  oi' 
general,  161 

Po]nilarity,  a  delusive  test  of  the  suc- 
cess of  public  institutions,  67 

of  Municipal  Trade,  56 

Population,  Distribution  of,  84  ;  in- 
crease of,  243,  269 

Porter,  Hon.  R.  P.,  15n,  VA2n,  126n, 
3S7n,  441 ;  on  the  taking  over  of 
the  tramways  by  the  Glasgow  Cor- 
poration, 145 

Post-Olilce,  The,  168 

Powers  sought  for  by  municipalities,  22 

Preferential  charges,  375 

Prices,  Arbitration  as  to,  415  ;  check  on 
trade  from  low  prices,  362  ;  difficulty 
of  comparing,  251  ;  in  monopolies, 
71  ;  in  municipal  trades,  247  et  seq., 
349  ;  in  outside  areas,  375  ;  legisla- 
tion as  to,  369,  384  ;  limits  of,  351  ; 
reductions  in,  257  ;  when  debts  are 
redeemed,  360  et  scq. 

Principal,  Repayment  of,  367 

Private  companies,  Concessions  to,  122- 
128  ;  rents  payable  by,  235,  237,  239, 
272  ;  voters  in  the  pay  of,  127,  128 

trade,     available     evidence     in 

favour  of,  59  ;  American  contentions 
against,  121-128;  claim  that  it  is 
more  economical  than  Municipal 
Trade,  162  ;  control  of,  53,  72  ;  cor- 
ruption in,  124-128  ;  difficulty  of  com- 
paring financial  results  of  private 
trade  with  those  obtained  by  muni- 
cipalities, 338  ;  hindrances  to,  289  ; 
legislation  affecting,  384  et  acq. ,  439 

Production,  Effect  of  high  wages  on,  38, 
39  ;  oscillations  in  the  cost  of,  373 

Profits  and  risks,  184,  185,  244  ;  defini- 
tion of,  174  ;  from  s])eculation,  184, 
189  ;  in  Municipal  Trade,  211  ctscq.^ 
242,  350  ;  net  profit,  358-360 ;  per- 
centage on,  213 ;  proportionate  to 
risks,  150,  151  ;  prohibition  of,  370, 
444 ;  when  debts  are  redeemed,  360 

Promissory  notes,  Powers  of  munici- 
palities to  issue,  21 

Property,  Effect  of  the  increase  of 
value  in,  51  ;  value  of,  279 

Protection  sought  by  traders,  287 

Provisional  orders,  380 

Public  and  private  enterprises,  Methods 
of  hiding  the  true  relative  cost  of,  226 

Authorities  Protection  Act,  99ri 

control     over     industries,     how 

ac(piired  by  Local  Authorities,  54  ; 
compared  with  private  control,  136- 
172 


Public  opinion.  The  value  of,  59, 66, 117 

works.  The  completion  of,  380 

Purchase,  Right  of,  407,  411 

Quality,  EflFect  of  on  [irices,  263  et  seq. ; 

of  goods  supplied  by  municipalities, 

247  ct  seq. 
Quarterly  lieview,    The,    330n,    332n, 

34171 
Quays,    Administration   of    by    Local 

Authorities,  6 

Racecourses  owned  by  Corporations, 
21 

Railway  and  Canal  Commission,  394 

companies  suffer  from  municipal 

tramways,  98 

Rate  in  aid  of  wages,  The,  44 

Rate-paid  voters,  107  et  seq. 

Ratepayers,  Risk  to,  372 

Rating  of  municipal  property,  177 

Redemption  period  of  debts,  359,  360, 
365 

Referendum,  a  municipal,  443 

Rehousing  o])erations,  327 ;  loss  in- 
curred in,  328 

Remunerative  undertakings,  42  ;  loans 
for,  209 

Rents  from  companies  owning  con- 
cessions, 356  ;  of  buildings,  370  ; 
paid  to  municipalities,  178  ;  payable 
to  private  companies,  338  ;  effect  of 
prices  on,  249  ;  paid  by  private 
companies,  235,  237,  239,  257,  353, 
354  ;  paid  for  municii)al  dwellings, 
329,  338  ;  variable,  413 

Reserve  funds,  items  of  expenditure 
and  not  profit,  221 

Residual  products  from  gas,  11 

Restriction  of  supplies,  89 

Revenue,  Indirect  effects  on,  281 

Revenues,  Municipal,  23 

Right  of  Purchase,  407,  411 

Ripley,  W.  Z.,  on  "Capitalisation," 
418,  429 

Risk  leads  to  imdue  caution,  144;  de- 
crease in,  244  ;  effect  of  on  profits, 
150,  151,  244,  259  ;  meaning  of, 
193 ;  to  ratepayers,  372  ;  profits 
should  be  proportionate  to,  150,  151 

Risks  and  gains,  1 73  et  seq. 

Roads,  The  construction  and  mainten- 
ance of,  78 

Roadways,  Repair  of,  181 

Rosebery,  The  Earl  of,  343 

Row-Fogo,  J.,  his  criticism  on  muni- 
cipal statistics,  210 ;  on  the  net 
profits  from  gas  works,  220,  221, 
222,  223  ;  on  the  accounts  of  local 
bodies,  381 


INDEX 


463 


St  Helen's  C  oiporation,   Action  of, 

witli  regard  to  tramways,  81,  82 
St  Louis,  Corruption  in,  118 
Salaried  staffs,  The  power  of,  in  Muni- 
cipal Trades,  155 
Salaries,  Effects  of  low,  110  ;  given  by 
private    companies    compared    Avitli 
those  given  by  municipalities,  151- 
155 
Sale  of  goods,  Competition  in,  300 
Salford  tramways,  Tlie,  148 
Savings  banks.  Municipal,  20 
Schiil^e,  A.  E.  F.,  his  "Quintessence 

of  Socialism,"  28/i 
Scotch   JIunicipal  Trades,   Profits  in, 

371 
Seligman,  E.  K.  A.,  53«,  il5n 
Sewage  works  by  direct  employment, 
36  ;  whether  they  shovdd  be  managed 
by   private  companies  or   by  direct 
labour,  69,  70 
Shareholders,  their  power  of  express- 
ing discontent,  167 
Shares,  Sale  of,  167 
Shaw,  Albert,  his  "  Municipal  Govern- 
ment," 3n,  Sin,  152n,  237%,  288«, 
dOln,  3097^,  400  ;  on  corruption,  121, 
122 
Sheffield  Corporation,  water  works,  7  ; 
manufacture  of  electrical  fittings  by, 
99 
Shops,  316 
Sinclair,  A.  H.,  153% 
Sinking  fund  charges,  348,  349,  366, 
375 

funds.  The  necessity  for,  347 

Slaughter-houses,  Municipalised,  4,  76 
Sliding  scales,  403,  413 
Slums,  327,  328 
Smart,  W.,  349 

Southampton,    Action    of    Socialistic 
councillors    in,    158  ;    water   works 
leased  from  a  monastery,  6 
Speculation,  Prefits  from,  184,  189 
Spiers,   F.    W.,   his   "Street  Railway 

System  of  Philadelphia,"  50% 
"Spoils  System,"  The,  119-121 
Staff,  Pay  of,  151,  152  ;  power  of,  155  ; 
promotion  of,  153  ;  selection  of,  151  ; 
tenure  of  office  by,  154 
Standing  orders.  Changes  in,  397 
State  control  and   the  municipalising 
of  industries,  The  choice  between,  67 
State-paid  labour,  Corruption  likely  to 

arise  from,  105 
Statistics,   Collection    of,    420 ;    relia- 
bility of,  271,  339 
Statutory  limitation,  416 
Streets,  Care  of,  79  ;  divided  responsi- 
hilit}'^  in  the  care  of,  81  ;  effect  of 
rights  over,  50  ;  in  Germany,  83 


Suffrage    laws.    Dissatisfaction    with, 

caused  by  Municipal  Trade,  95 
Supplies,  Coi)iousness  of,  89-93 
Sykes  F,  J.,  18?i,  336% 

Taxation,  Local,  177  ;  increase  in,  23 

of  companies,  96,  447 

of  property,  226 

Telephones,  Municipal,  22 

Tenement  houses,  Erection  of,  18 

Timea,  The,  98/(,  104«,  106m,  108%. 
115%,  144%,  15271,  155n,  157«-160%, 
229%,  255%,  292%,  326%,  336,  338'/i, 
342,  448n 

Towai  Councils,  Facilities  possessed  by, 
for  checking  competition,  298 

Trade,  A  Definition  of,  26 

Union  rate  of  wages,  31 

Trades  involved  in  building,  321 

Unions,  The  influence  of,  104 

Tramway  Acts,  The,  15,  404 

Companies,  Inconvenience  of  the 

private  rights  exercised  by,  81  ; 
rents  paid  by,  235,  237,  239,  257, 
353,  354 

Concessions,  404 

Tramways,  Barriers  against  the  muni- 
cipal working  of,  swept  away,  16  ; 
construction  of,  82-85 ;  eflect  on 
taxation  of  the  further  development 
of  existing  ti-amways,  143;  fares  of, 
253;  first  adopted  for  street  traffic, 
14  ;  ownership  of,  420,  421 ;  jtrofits 
made  out  of  tramways  by  English 
municipalities,  236 ;  recommendation 
of  the  New  York  Committee  on, 
418  ;  rents  paid  for,  235 

Tunbridge  Wells  Telephone  Seivice, 
22 

Unearned  increment,  195, 198-202, 403 
United  States,  The,  corruption  in,  117, 
118;  introduction  of  gas  into,  10; 
legal  advisers  to  the  cities  in,  110  ; 
municipal  gas  works  in,  11  ;  nnmi- 
cipal  trade  in,  131  ;  rapid  develop- 
ment of  electric  industries  in,  12; 
remuneration  of  executive  posts  by 
private  companies  in,  153  ;  sewage 
system  in,  69  ;  tenure  of  office  of 
municipal  officials  in,  154;  tramways 
in,  chiefly  the  work  of  private  enter- 
prise, 15  ;  water  supply  in,  8 
Unremunerative  enterprises,  143 

Valuation  for  purchase,  202,  407, 
425-429 

Victoria,  Paid  voters  in,  116 

Voters,  controlled,  110-112,  power  of 
disciplined  voters,  115 ;  power  of 
expressing    their    discontent,    167; 


464 


INDEX 


Voters — continued. 
the  hallot,  how  far  a  protection  to, 
112;  unrated,  97,  446,  447 

Wages,  advantages  of  high  wages  in 
municipal  trades,  33,  35,  40  ;  danger 
of  raising  municiiial  workmen's 
wages,  43  ;  effect  of  building  opera- 
tions on,  330;  effect  of  high  wages 
on  production,  38,  39 ;  fluctuations 
in  the  rate  of  wag>.s,  106 ;  high  wages 
and  corruption,  43  ;  increase  of  wages 
in  municipal  trade,  34,  35,  358  ;  of 
employees,  30,  156,  158,  159  ;  trade 


union  rate  of  wages,  31 ;  wages  and 
taxation,  43  ;  want  of  unifonnity  in 
wages  offered  by  municipalities,  161 
Wash-houses  in  Glasgow,  4 
Watering  of  capital,  123,  417 
Water  rates,  Comparison  of,  253 

supply,   The,   315 ;  argument  for 

municipalising  it,  322  ;  control  of, 
in  primitive  time,  6  ;  municipalisa- 
tion  of,  7 ;  not  competitive,  287 ; 
restriction  of,  89 

works,  Advantages  of  municipal, 

86  ;  losses  of  municipalities  on,  9 
Woolwich  Ferry,  Expenditure  on,  6 


PRINTED   AT   THE   EDINBURGH    PRESS,    9   AND    II    YOUNG  STREET. 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 

Los  Angeles 

This  book  is  DUE  on  the  last  date  stamped  below. 


Form  L9-25m-9,'47(A5618)444 


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